On Friday, an analyst at Rosenblatt adjusted the financial outlook for Viavi Solutions (NASDAQ:VIAV), increasing the price target to $10.50 from the previous $8.25. Despite the change, the firm maintained a Neutral rating on the stock.
This revision comes in the wake of Viavi Solutions' first quarter fiscal year 2025 (1Q25) earnings report, which showed revenue and earnings per share (EPS) falling short of expectations due to weaker spending by U.S. Service Providers through September.
However, the company's guidance for the second quarter of fiscal year 2025 (2Q25) surpassed predictions, marking the first such occurrence in several years. This was attributed to a recent upswing in customer orders. The management of Viavi Solutions also provided an encouraging outlook for the remainder of the fiscal year, citing potential growth driven by investment in U.S. Tier 1 Fiber, Cable, and AI Data Centers with 800G/1.6T technologies.
The analyst noted that while the positive management commentary is a good sign, the decision to retain a Neutral rating is based on the current valuation of Viavi's stock, which is trading at 17 times the projected earnings for fiscal year 2026 (FY26). The firm indicated a need for more evidence of strong and sustainable drivers for EPS growth before considering a more positive stance.
In comparison to Viavi Solutions, Rosenblatt expressed a preference for other companies in the sector, recommending Lumentum (LITE, Buy) and Ribbon (RBBN, Buy), and acknowledging Adtran (NASDAQ:ADTN, Neutral) as well-positioned to benefit from the strengthening trend among U.S. Service Providers.
The revised price target for Viavi Solutions is based on a 19 times multiple of the projected FY26 EPS, which is slightly below the 20 times sector average multiple.
In other recent news, Viavi Solutions reported its fourth-quarter and full fiscal-year earnings for 2024. The company reported a net revenue of $252 million for the quarter, a 2.4% sequential increase but a 4.4% decrease year-over-year. The full fiscal year revenue was $1 billion, marking a 9.6% decline compared to the previous year. The operating margin for the quarter was 10.9%, and earnings per share reached $0.08.
Viavi also announced a restructuring plan aiming for annualized cost savings of approximately $25 million by the end of fiscal 2025. For the first quarter of fiscal 2025, the company anticipates revenue to be in the range of $235 million to $245 million.
In a significant development, Viavi has entered an agreement with Telefónica Hispanoamérica to supply automated network inventory management tools, which will support operations across several Latin American countries.
The company also launched a new Ethernet testing module, the ONE-1600, aimed at supporting the emerging 1.6Tb/s ecosystem. These are recent developments that signal Viavi's ongoing efforts to extend its global reach and technological influence.
InvestingPro Insights
To complement the analyst's perspective on Viavi Solutions (NASDAQ:VIAV), recent data from InvestingPro offers additional insights into the company's financial position and market performance. Despite the challenges highlighted in the article, InvestingPro Tips indicate that Viavi's net income is expected to grow this year, and analysts predict the company will be profitable. This aligns with the management's optimistic outlook for the remainder of the fiscal year.
InvestingPro data shows that Viavi's revenue for the last twelve months as of Q4 2024 stood at $1000.4 million, with a gross profit margin of 58.94%. While the company experienced a revenue decline of 9.56% over this period, its strong 3-month price total return of 21.32% suggests improving investor sentiment, possibly reflecting the recent upswing in customer orders mentioned in the article.
It's worth noting that Viavi operates with a moderate level of debt and its liquid assets exceed short-term obligations, potentially providing financial flexibility as it pursues growth opportunities in U.S. Tier 1 Fiber, Cable, and AI Data Centers.
For investors seeking a more comprehensive analysis, InvestingPro offers 8 additional tips for Viavi Solutions, providing a deeper understanding of the company's financial health and market position.
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