Viavi Solutions Inc: 5G Stock Breaks Through Resistance but Still Undervalued

Viavi Solutions Stock: Wall Street Is Bullish on This 5G Play

With a market cap of nearly $4.0 billion and shares trading at record levels, Viavi Solutions Inc (NASDAQ:VIAV) is hardly an ignored stock.

VIAV stock is an excellent 5G stock with tremendous near- and long-term growth potential. And Wall Street agrees.

In 2019, Viavi Solutions stock climbed by 52%, catapulting it out of penny-stock territory. 2020 was a tough year for the broader market, but VIAV stock has since rebounded and erased all of its losses associated with the March 2020 stock market crash.

After trading in a tight range for much of 2021, with resistance near $17.00, Viavi Solutions stock recently hit a record high of $17.47.

And VIAV stock has more room to run.

Of the nine analysts providing a 12-month share-price forecast for Viavi Solutions Inc, their median target is $19.00, which points to additional nine-percent upside from the current level. The high estimate for Viavi Solutions stock is $23.00, which suggests a potential 32% run.

Why the optimism?

The San Jose, CA-based 5G company reported impressive third-quarter results that topped Wall Street expectations. Despite Viavi Solutions Inc’s third quarter typically being seasonably weak, the company managed to report record revenue and adjusted earnings. Management was also upbeat about the fourth quarter.

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VIAV Stock Overview

A pick-and-shovel 5G company, Viavi Solutions develops and manufactures custom analytics and wireless network testing systems that are used to test new 5G technology. (Source: “About Us,” Viavi Solutions Inc, last accessed May 28, 2021.)

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

Viavi Solutions Inc ranks No. 1 or No. 2 in every space it operates, including industry game changers like 5G, fiber, and 3D sensing.

The company’s segments include Network Enablement, Service Enablement, and Optical Security and Performance Products.

The Network Enablement segment provides testing solutions that access networks to perform build-out and maintenance tasks. The Service Enablement segment offers embedded systems that yield network, service, and application performance data. The Optical Security and Performance Products segment provides optical security solutions.

Great Q3 Results

In early May, Viavi Solutions announced that its revenue for the third quarter of fiscal 2021 (ended April 3) increased 18.5% year-over-year and 1.2% sequentially to a record $303.4 million. (Source: “Viavi Announces Third Quarter Fiscal 2021 Results,” Viavi Solutions Inc, May 4, 2021.)

The company’s third-quarter 2021 net income was $11.8 million ($0.05 per share), compared to the third-quarter 2020 net loss of $32.8 million ($0.14 loss per share) and the second-quarter 2021 net income of $21.9 million ($0.09 per share).

Its adjusted net income was $42.3 million ($0.18 per share), a 32% increase over the third-quarter 2020 adjusted net income of $32.0 million ($0.14 per share) and the second-quarter 2021 adjusted net income of $52.1 million ($0.23 per share).

During the third quarter of 2021, Viavi Solutions Inc generated $48.1 million of cash from operations, versus $39.1 million in the same prior-year period.

The company ended the third quarter with $672.2 million in cash and cash equivalents, as well as $618.1 million in long-term debt.

“VIAVI exceeded the high end of the guidance range with the revenue at $303.4 million and [non-generally accepted accounting principles (non-GAAP)] operating margin at 20.2%,” said Oleg Khaykin, president and CEO. “Non-GAAP [earnings per share] at $0.18 reached the high end of the range.” (Source: Ibid.).

Business Outlook

Looking ahead, management expects Viavi Solutions Inc’s Network and Service Enablement revenue to continue to strengthen, driven by strong demand for field Instruments and lab equipment. The company’s Optical Security and Performance Products revenue is expected to be up significantly year-on-year, but sequentially down from a very strong fiscal third quarter.

For the fourth quarter of fiscal 2021 ending July 3, Viavi Solutions expects to report net revenue between $290.0 and $310.0 million, compared to $266.6 million in Q4 2020. It also expects to report adjusted earnings per share between $0.18 and $0.20, compared to $0.18 in Q4 2020.

Analyst Take

Viavi Solutions Inc continues to be a solid 5G stock with great long-term growth potential. As mentioned above, the company recently reported record third-quarter financial results and a solid outlook for the fourth quarter.

Further out, look for Viavi Solutions stock to gain traction as demand for testing equipment grows with more telecom carriers launching 5G networks.