This Day On The Street
Continue to site
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here

Adtran: Plenty of Value Remains

NEW YORK ( TheStreet) -- Carrier spending, or lack thereof, continues to be the major growth culprit among telecom stocks. While I believe Adtran's (ADTN - Get Report) management has exceeded all expectations relative to the industry's struggles, investors have demanded more. And this is despite the company having reversed 2012's stock loss of 34% with 40% gains last year.

Adtran's strong performance last year wasn't easy. Although the likes of Verizon (VZ) and AT&T (T) have loosened their purse strings to reinvest capital back into their infrastructure in an effort to win some of those deals, competition from Cisco (CSCO) and Ciena (CIEN) also inched up several notches -- to the extent that Cisco was willing to sacrifice some margin.

[Read: Hershey's Takes on Nutella, Jif, in Spreads]

Despite these threats, Adtran's management consistently delivered strong profits, helped by above-average gross margin and operating margin. This indicated how strongly positioned its products were even amid Cisco's pricing pressure. Investors took for granted the manner in which Adtran was able to offset the recent slowdown while bigger names like Juniper (JNPR) and F5 Networks (FFIV) dropped off the grid.

With Adtran shares trading at price-to-earnings ratio of 41, more than 3 times that of Cisco, it's hard to make the "value" argument now. In fact, there are some analysts that believe the stock is destined to fall. But even if that were to happen, I don't see any fundamental reason to assume the decline would be anything other than profit-taking. I wouldn't blame investors for this. It's hard to pass up.

Adtran still possesses the ability to leverage its technological advantages to grow. The thing to remember here is that management has never been shy about taking innovative risks to grow its bottom line. As long as that culture exists, there's no question that Adtran is perfectly positioned to capitalize in carrier spending and overall enterprise IT.

[Read: 3 Reasons Why Rite Aid Is Right On ]

On Wednesday, management will need to sell the Street on Adtran's long-term prospects by offering encouraging guidance. I believe this is the only way to avoid a near-term sell-off, regardless of the numbers. The Street will be looking for earnings-per-share of 14 cents on revenue of $159 million, which would represent year-over-year revenue growth of close to 14%.

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

David Peltier uncovers low dollar stocks with serious upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Only $9.95
14-Days Free
Dividend Stock Advisor

David Peltier identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Real Money

More than 30 investing pros with skin in the game give you actionable insight and investment ideas.

Product Features:
  • Access to Jim Cramer's daily blog
  • Intraday commentary and news
  • Real-time trading forums
Only $49.95
14-Days Free
14-Days Free
ADTN $19.89 0.00%
AAPL $95.03 0.21%
FB $116.73 0.00%
GOOG $691.02 0.00%
TSLA $247.54 -0.07%


Chart of I:DJI
DOW 17,830.76 -210.79 -1.17%
S&P 500 2,075.81 -19.34 -0.92%
NASDAQ 4,805.2910 -57.85 -1.19%

Free Reports

Top Rated Stocks Top Rated Funds Top Rated ETFs