J. Michael Jones
Bofa downgraded CommScope (NASDAQ:COM) to Neutral from Buy, citing uncertainty about the plan to deal with debt and a difficult year ahead.
Analysts said underlying trends have worsened substantially and debt reduction actions remain uncertain. They believe that CommScope management is exploring multiple scenarios to reduce the roughly $1.28 billion of debt due in June 2025, though they are stumped as to why the company hasn’t acted yet and noted that risks increase as the runway shortens. .
Underlying market trends have also worsened in CommScope’s core segments, especially Connectivity and Cable Solutions, or CCS, and Outdoor Wireless Networks, or OWN, which combined accounted for 57%/72% of the company’s revenue/EBITDA. fiscal year 22 and decreased -39. %/-54% year over year this quarter, respectively, according to analysts.
The company expects 2024 EBITDA to be flat year-over-year at about $1.02 billion, below previous Street expectations of $1.19 billion, which may not have been adjusted after the previous announcement, the analysts added.
CommScope slightly raised its 2023 free cash flow, or FCF, guidance to $325 million, up from $300 million previously.
Bofa analysts said they lowered their estimates to reflect expected weak trends and downgraded the rating to Neutral. They also lowered their price target on the stock to $1.75 from $2.25.
In analysts’ view, CommScope (COMM) has about nine months to address its June 2025 debt maturity before it becomes effective to avoid the risk of a going concern clause from auditors.
The company’s management also refrained from providing a concrete action plan, saying only that it is considering repayment options (including debt buybacks), refinancing and asset sales.
Analysts also see limited catalysts in the foreseeable future as stocks worsen due to weak trading conditions.
Additionally, analysts see elevated customer inventories, slower deployment rates and increasing competition in the Access Network Solutions, or ANS, segments, with third-quarter sales down -36% year over year, leading which is a concern given that ANS segment is one of the potential assets that may be considered for sale.
However, analysts noted that one bright spot was the strong performance of Network, Smart Cellular and Security Solutions, or NICS, in the quarter, with revenue up +12% year over year, although management also cautioned that Order rates are weak due to the current recovery from previously high backlog levels.
CommScope (COMM) has a Strong Sell rating on Looking Alpha’s Quant Rating system, consistently outperforming the market. The average rating of Looking Alpha authors (1 author) is a Sell and the average rating of Wall Street analysts is a Hold.
COMMUNICATION -4.46% at $1.50 pre-market on November 10
