Clearfield Inc: 50% Upside for 5G Stock After Another Record Quarter

Why Clearfield Stock Could Rise Again

Technology stocks have been the biggest winners during the COVID-19 pandemic, but now that interest rates are poised to rise, growth stocks have taken a back seat to their value stock peers.

While many investors have fled tech stocks, it’s important to remember that tech stocks will continue to be some of the biggest long-term winners. And today’s headwinds will eventually fade away.

One great 5G stock that has taken a breather from its 2021 year-end record high is Clearfield Inc (NASDAQ:CLFD). For those holding CLFD stock, the last two years have been monumental, with Clearfield stock climbing by 76% in 2020 and an impressive 240% in 2021.

It’s been a different story so far in 2022, with CFLD stock down by 30% year-to-date and trading at its lowest level since November 2021.

The good news is that Clearfield stock’s downturn has nothing to do with what’s been going on at the company. It has to do with broader malaise about the tech sector, rising interest rates, inflation at a 40-year high, and the war in Ukraine.

A specialist in fiber management for communication service providers, Clearfield Inc reported record second, third, and fourth-quarter fiscal 2021 results (and, of course, record full-year results).

That momentum carried into fiscal 2022 with another quarter of record results, which included record revenue, backlog, and net income. The company also increased its fiscal 2022 net sales range, pointing to year-over-year growth of 25% to 30%.

Cash has been coming in so nicely that Clearfield Inc reinstated its share repurchase program that it had suspended due to COVID-19.

Those aren’t the kinds of actions you would expect to see from a company whose stock is 30% in the red this year.

On the plus side, CLFD stock is up by 88% year-over-year. And with 5G adoption still in its infancy, the outlook for Clearfield stock is solid. Wall Street analysts have an average 12-month share-price target for Clearfield Inc of $92.00. This points to a potential gain of approximately 53%.

Chart courtesy of StockCharts.com

About CLFD Stock

For 5G wireless networks to work, they need lots of fiber. A single 4G cell served by fiber can service 10 square miles. With 5G, it would take 60 cells—each covering a tiny 750-square-foot area—to service one square mile. Each cell would require about eight miles of fiber, or 480 miles of fiber per square mile.

That’s where Clearfield Inc fits in. The company designs, manufactures, and distributes fiber-optic management, protection, and delivery products for communication networks. (Source: “Investor Presentation: January 2022,” Clearfield Inc, last accessed March 15, 2022.)

Clearfield leads its industry by helping service providers reduce the high costs associated with deploying, managing, protecting, and scaling a fiber-optic network. Clearfield Inc deploys millions of fiber ports each year throughout North America and beyond.

Over the next five years, more new fiber will be needed than has ever been used to date. Even after that, the demand for new fiber is expected to be exceptionally high. The market for 5G is forecast to be a 20+ year sustainable opportunity.

In order to meet the demand for its products, Clearfield Inc will be opening a new distribution center in Minnesota in its fiscal second quarter, doubling the company’s U.S. footprint.

On top of that, Clearfield Inc’s new manufacturing center in Mexico will come online in its fiscal second quarter. The facility will have 300,000 square feet of capacity, effectively tripling the company’s footprint in Mexico.

Another Record Quarter for Clearfield Inc

For the first quarter of fiscal 2022, ended December 31, 2021, Clearfield announced that its revenue increased by 89% year-over-year to a record $51.0 million. The big gains were driven by an 81% growth in community broadband revenue. (Source: “Clearfield Reports Record Fiscal First Quarter 2022 Results,” Clearfield Inc, January 27, 2022.)

The company’s quarterly backlog in its first quarter increased by 53% sequentially to a record $101.0 million, compared to $66.0 million at the end of fiscal 2021. That backlog is also up by 1,036% from $8.9 million as of December 31, 2020.

Clearfield Inc’s backlog is composed of a broad set of more than 200 customers, including several distributors.

The company’s income from operations in the first quarter of fiscal 2022 jumped by 251% year-over-year to $13.0 million.

Clearfield Inc’s first-quarter net income increased by 228% year-over-year to a record $10.4 million, or $0.75 per share.

Moreover, the company reinstated its stock repurchase program and increased it by 83% to $22.0 million. The program still has approximately $15.0 million authorized.

For fiscal 2022, Clearfield Inc expects to deliver annual net sales of $176.0 to $183.0 million, representing growth of 25% to 30% compared to fiscal year 2021.

Analyst Take

Clearfield Inc has a strong competitive position in a market that continues to evolve and grow with each passing quarter.

The company has a rock-solid balance sheet with virtually no debt and a 14-year history of profitability and free cash flow. As outlined earlier, Clearfield reported record first-quarter results, increased its full-year guidance, and reinstated its share repurchase program.

All that points to future gains from Clearfield stock.