CommScope Gets a Boost

CommScope Inc. shares got a healthy bump Thursday after a Morgan Keegan & Company Inc. analyst upgraded the stock from Market Perform to Outperform.

Simon Leopold based the boost on several items, including an expected sales forecast for 2007, and the likelihood that CommScope's pending $2.6 billion acquisition of Andrew will be more accretive than originally estimated. (See CommScope Comes Back for Andrew.)

CommScope shares were trading at $62.27 apiece in midday trading Thursday, up $3.97, or 6.81 percent.

Leopold estimates Andrew could yield earnings per share of $3.70, a 26 percent increase above the firm's standalone estimate on CommScope, and ahead of the firm's initial EPS estimate of $3.30. Earnings multiples of 18-20x suggest the stock could be worth $67 to $74, according to the research note.

"The acquisition raises execution risk for CommScope, yet we consider it a reasonable risk that can provide longer-term benefits," Leopold wrote, pointing out Andrew's position in the wireless market and other emerging markets.

On the sales front, the firm believes CommScope will raise 2007 sales estimates from the current range of $1.84 billion to $1.89 billion, to $1.89 billion to $1.94 billion. That increase, Leopold said, is thanks in part to "more stable purchasing" by AT&T Inc. (NYSE: T) for upgrade activity tied to former BellSouth areas and the need for more cabinets as it pushes fiber closer to subscribers. Also contributing is the belief that cable operators will need to enhance or upgrade plant at a greater rate in order to handle increased traffic loads and transmission rates.

Another cable-related growth segment for CommScope might emerge as MSOs consider deploying fiber-to-the-premises (FTTP) technology in greenfields, where developers are insisting upon it, or using it to stave off competitive Verizon Communications Inc. (NYSE: VZ) FiOS pockets.

CommScope is addressing these opportunities with a platform called BrightPath, which allows cable operators to push fiber to the home but leverage their existing headends and home-side devices, including digital set-tops. (See MSOs Travel 'BrightPath' and RFOG Update .)

But CommScope should face stiff competition here, as both Motorola Inc. (NYSE: MOT) and Scientific Atlanta introduced similar platforms earlier this year. (See Moto Intros Cable PON and SA Pitches Cable PON.)

— Jeff Baumgartner, Site Editor, Cable Digital News

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