Viavi Solutions Inc: Tech Sell-Off Makes This 5G Stock an Even Better Opportunity

Viavi Solutions Inc up 50% Since March, But Still Undervalued

Viavi Solutions Inc (NASDAQ:VIAV) is a network testing company that has been thriving in the 5G environment.

In 2019, the company’s share price advanced 53%, catapulting its stock out of penny stock territory. Its outlook for 2020 looked just as bullish.

But then COVID-19 hit and the broader markets took a dive in February and March. But, Viavi Solutions stock rebounded. By August, the company’s share price had advanced 83%.

The strong gains were in part a result of better-than-expected fourth-quarter results. That momentum was upended in early September, when tech stocks began to sell off.

This sell-off shouldn’t have come as a total surprise.

First, tech stock valuations were a little high following their unexpected run over the typically quiet summer months, and were ripe for some profit taking.

Second, September is historically the worst month for stocks. Still, no one wants to see a sell-off.

Regardless, it appears as though VIAV stock found support at $11.50, and it has been trending upward since then. That said, VIAV stock still needs to climb 25% to get to its pre-September sell-off level and approximately 35% to get to its pre-coronavirus levels.

We have every reason to believe this will happen. Again, Viavi Solutions reported solid fourth-quarter results, which showed COVID-19 had less of an impact on its operations than expected.

Chart courtesy of StockCharts.com

VIAVI Stock Overview

Viavi Solutions Inc is a sort of pick-and-shovel 5G stock. While it doesn’t make 5G technology, it does develop and manufacture custom analytics and wireless network testing systems used to test new 5G technology. (Source: “About Us,” Viavi Solutions Inc, last accessed September 18, 2020.)

In fact, Viavi Solutions, which was formerly known as JDS Uniphase, was the first company with saleable test systems that validated the performance of 5G networks. Viavi is also a leader in light management solutions for 3D sensing, anti-counterfeiting, consumer electronics, industrial, automotive, and defense applications.

The San Jose, California-based company ranks #1 in Test and Measurement, Wireless and Avionics, and Bank Note Authentication and 3D Sensing.

Strong Fourth Quarter Results

On August 11, Viavi announced that revenue for the fourth quarter of fiscal 2020, ended June 27, slipped eight percent year-over-year to $266.6 million. (Source: “VIAVI Announces Fourth Quarter and Year End Fiscal 2020 Results,” Viavi Solutions Inc, August 11, 2020.)

Fourth-quarter net income advanced 113% year-over-year to $26.7 million, or $0.12 per share. Earnings from continuing operations were up 140% at $0.12 per share, while adjusted earnings per share from continuing operations were up 5.9% at $0.18.

For fiscal 2020, total revenue inched up 0.5% year-over-year to $1.136 billion. Full-year net income was up 431% at $28.7 million, or $0.13 per share. Earnings from continuing operations were up 300% at $0.12, while adjusted EPS from continuing operations climbed 7.4% to $0.73.

“In fiscal fourth quarter our Wireless Lab equipment business delivered a record revenue quarter driven by 5G and we also saw overall NSE demand stabilizing,” said Oleg Khaykin, VIAVI’s president and CEO. “For the full fiscal year 2020, revenue and non-GAAP EPS grew despite the business impact from the COVID-19 pandemic in the second half.”

Business Outlook for Q1 2021

For the first quarter of fiscal 2021 ending October 3, 2020, Viavi expects to report:

• Net revenue of between $258.0 million and $282.0 million, compared to $299.8 million in Q1, 2002
• Adjusted EPS of between $0.14 and $0.16, versus $0.18 per share in the same period last year

Analyst Take

Viavi Solutions is a great 5G stock with equally great momentum. Its fourth-quarter results came in better than expected, even with the impact of the coronavirus taken into account. While near-term uncertainty remains, Viavi expects to see increased, long-term demand for its 5G technology and continued growth for its 3D Sensing technology in mobile applications.