Casa Systems Stock: Undervalued 5G Stock in Midst of Multi-Year Transformation

Bullish Outlook for Casa Systems Inc

What’s better than a 5G stock that’s doing well? One that’s doing really well and is expected to get even better. That’s what you get with Casa Systems Inc (NASDAQ:CASA).

Casa Systems is an undervalued 5G company that recently reported a fourth-quarter and full-year earnings and revenue beat. Furthermore, despite the challenging economic environment, the company announced a solid near-term outlook.

Longer-term, Casa Systems Inc’s outlook is even more bullish. In November 2021, the company announced that it was in the process of a multi-year transformation.

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About CASA Stock

Casa Systems Inc is a communications technology company that provides new ways for service providers to build networks. It has 475 customers in more than 70 countries. (Source: “Investor Presentation: Q2 2021,” Casa Systems Inc, last accessed March 23, 2021.)

The company provides public and private physical and cloud-native 5G network infrastructure to communications service providers and enterprise customers. Casa Systems Inc says it’s the only vendor with end-to-end broadband products for wireless, cable, and fixed telecommunications networks.

The company’s “Axyom” software platform features virtual network functions for all types of communications service providers. It “delivers high performance, flexible scaling, and efficient operations to fixed, cable, and mobile broadband core networks.” (Source: “Casa Systems Axyom Software Platform,” Casa Systems Inc, last accessed March 23, 2021.)

Multi-Year Transformation

In November 2021, Casa Systems announced it was deploying a disruptive, end-to-end connected cloud solution to help customers generate new revenues from 5G, rural, and mobile private networks. (Source: “Casa Systems to Announce Multi-Year Transformation Toward Software and Cloud at Investor Day,” Casa Systems Inc, November 19, 2022.)

As a result of the company’s new priorities, which will see Casa Systems Inc move from being a hardware-heavy company to a software and cloud-centric one, three improvements the company expects to see by 2025 are:

• At least 50% of its revenue coming from software and cloud products
• A return to gross margin of 60% or greater
• Gross profit increasing at a compound annual growth rate of no less than 10%

Jerry Guo, Casa Systems Inc’s president and CEO, commented, “Software and cloud are where we see our biggest growth potential and it’s where the largest percentage of our development and sales efforts are focused.” (Source: Ibid.)

Q4 Earnings & Revenue Beat

For the fourth quarter ended December 31, 2021, Casa Systems announced revenue of $105.0 million, compared to Wall Street’s estimate of $103.8 million. (Source: “Casa Systems Reports Fourth Quarter 2021 and Full Year 2021 Financial Results,” Casa Systems Inc, February 24, 2022.)

The company’s fourth-quarter net income was $1.5 million, or $0.02 per share. Its adjusted net income was $6.5 million, or $0.07 per share, versus analyst calls of $0.05 per share.

Casa Systems Inc’s full-year revenue inched up by two percent to $401.3 million. Its full-year net income was $3.2 million, or $0.04 per share. Its adjusted earnings were $0.14 per share.

“Despite the supply chain issues we faced in the second half of the year, I am happy to report that 2021 was another growth year for Casa,” said Guo. “Additionally, we made significant progress with our wireless products during the fourth quarter and full year, delivering double digit growth in both periods.” (Source: Ibid.)

He added, “Wireless is now the largest source of our revenue and our most critical growth driver. For 2022, we are focused on growing our software and cloud revenue, as we committed in our Investor Day. This will mean significantly higher margins and improved profitability for the fiscal year 2022.”

For fiscal 2022, Casa Systems Inc expects to report:

• Revenue between $380.0 and $430.0 million
• Its software segment earning between 25% and 30% of the company’s revenue
• Adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) between $58.0 and $78.0 million
• Diluted net income per share between $0.10 and $0.28

Analyst Take

Casa Systems Inc has been around for a while, but its growth story is just getting started. The company operates in an industry with a total addressable market of $45.0 billion. The biggest segment of that market, worth $35.6 billion, is wireless. The other two segments are fixed telco and cable.

As mentioned earlier, back in November, the company announced a multi-year transformation that will see at least half of its revenue come from software and cloud products by 2025. As a result of the increased software revenue, Casa Systems Inc expects that its gross margin and gross profit will significantly improve over time.

That’s positive news for Casa Systems stock investors.