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Buy Adtran Ahead of Earnings

NEW YORK ( TheStreet) -- Shares of Adtran (ADTN - Get Report) closed up 3.4% to $19.18 Monday, two days before the company is expected to report its first-quarter earnings.

While Adtran experienced a difficult 2012, losing more than 34% of its value due to poor carrier spending, the company's fourth-quarter results were broadly positive. And with continued operational improvements, these shares are looking interesting.

Adtran's most recent earnings produced revenue that dropped 20% year over year and 13.7% sequentially. Adtran's enterprise hardware took a hit, down 6% year over year. While these are not breathtaking results, it's not as if Adtran was being significantly outperformed by rivals. The challenging carrier spending environment made it tough on all telecoms, including bigger names like Juniper (JNPR).

However, Adtran was able to offset the slowdown with better-than-expected results from dealer channels, which increased 12%, helped by growing demand of the Bluesocket wireless LAN product. Investors have to be encouraged by these improvements. This is going to be an area of strength for Adtran down the road.

The strong growth in dealer channels is important as it gives Adtran a clearer path towards sustainable growth. it's something to monitor in the near term. And investors should focus on what management has to say about new developments during the conference call. However, analysts have not appeared impressed.

It seems the Street is still underestimating Adtran's technology. Granted, Adtran is not as sexy as Cisco (CSCO), but the company has not carried the growth risks of F5 (FFIV), either. However, where Adtran may lack in flair, the company has made up for it in execution.
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