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April 11, 2022
CommScope is a "good" company with a plan for the future, but the supplier remains under pressure by persistent supply chain constraints coupled by a heavy debt load. That's a summation from Raymond James, which announced Monday it had downgraded CommScope shares to "underperform" from "market perform" ahead of the company's Q1 2022 results.
That downgrade comes soon after a similar move by Bank of America, which downgraded CommScope from "neutral" to "underperform" and cut its price target from $12 to $8, citing near-term growth challenges.
The downgrades arrive at a vulnerable time for CommScope, which is undergoing a major overhaul under Chuck Treadway, who took over as CEO in the fall of 2020. CommScope recently restructured its core business, including forming a new Access Network Solutions unit, and combining its inside plant and cable connectivity units.
Figure 1: (Source: RidingMetaphor/Alamy Stock Photo)
Among other strategic decisions, CommScope has delayed plans to spin off Home Networks, a unit that makes and sells set-tops, gateways and other customer premises equipment (CPE), due to the troubled supply chain environment. CommScope also confirmed recently that it had discontinued the sale of spectrum-management services for the shared 3.5GHz CBRS band.
"We consider CommScope a good company; management has a plan, yet it faces challenges with increasing input costs, and we worry that aggressive cost cuts could protect cash flow, yet jeopardize its future," Raymond James analyst Simon Leopold explained in a research note distributed via email.
Leopold expects CommScope to generate Q1 2022 sales in line with consensus, despite the impact from a shortage on semiconductors and other components that's hitting CommScope's Home Networks unit the hardest. However, Leopold also anticipates that CommScope could miss its full-year 2022 targets.
And while demand and backlog orders at CommScope look strong, the company "could face challenges in 2025 and 2026 repaying debt," the analyst warned. He noted that the company has $1.3 billion due in 2025 and $4.5 billion due in 2026, with less than $500 million on the balance sheet now. "[W]e expect it will take actions to shift its debt schedule," he wrote.
Leopold also expects CommScope to have trouble raising prices for its operator customers amid higher costs driven by inflation and persistent supply chain constraints.
"CommScope has stepped up its engagement with customers regarding price increases to address the supply constraints, but the full effects of this are not expected to be realized for several quarters," he wrote.
That is all contributing to what's become a mixed bag. Leopold believes opportunities across CommScope look promising, save for Home Networks, and expects the company's outdoor wireless unit to exceed expectations in 2022.
— Jeff Baumgartner, Senior Editor, Light Reading
Senior Editor, Light Reading
Baumgartner also served as Site Editor for Light Reading Cable from 2007-2013. In between his two stints at Light Reading, he led tech coverage for Multichannel News and was a regular contributor to Broadcasting + Cable. Baumgartner was named to the 2018 class of the Cable TV Pioneers.
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