NEW YORK (TheStreet) -- Arris Group (ARRS - Get Report) stock was down in trading Monday falling 5.7% to $28.03. The drop for the telecom equipment manufacturer comes after rumblings of news that Apple (AAPL - Get Report) was in talks with Comcast (CMCSA - Get Report) to offer a cloud streaming service to its 26.5 million subscribers through a television box designed by Apple.
However, analysts at National Alliance see the potential deal as "an unmitigated positive" for the company. "As we detailed in our Arris initiation, Comcast's 'IP Home' strategy is built on a new generation of CPE [customer provided equipement] from Arris and Pace (and presumably at some point, Cisco (CSCO - Get Report)) and is intended to accommodate third-party IP-enabled consumer devices such as iPhones and iPads. A new Apple device married to an Apple TV service that is managed through Comcast's network... is entirely consistent," said analyst Brian Coyne.
National Alliance has a "buy" rating for the company with a price target of $32. Analysts believe that a deal with Apple would integrate Arris technology instead of replacing it. "We see no disintermediation threat or reduction of Arris's addressable market from such a service, as we believe Apple's device would run in concert with (not in place of) Arris's CPE. If anything, a popular Apple-powered video service streaming to a subscriber-purchased Apple iDevice would only serve to grow Arris's opportunity around its next-gen IP gateways."
The Wall Street Journal reported late Sunday that Apple was in talks with Comcast concerning a yet-to-be-announced deal.
TheStreet Ratings team rates ARRIS GROUP INC as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:
"We rate ARRIS GROUP INC (ARRS) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its robust revenue growth, good cash flow from operations and solid stock price performance. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ARRS's very impressive revenue growth greatly exceeded the industry average of 1.1%. Since the same quarter one year prior, revenues leaped by 248.6%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
- Compared to its closing price of one year ago, ARRS's share price has jumped by 65.29%, exceeding the performance of the broader market during that same time frame. Turning to the future, naturally, any stock can fall in a major bear market. However, in almost any other environment, the stock should continue to move higher despite the fact that it has already enjoyed nice gains in the past year.
- Net operating cash flow has significantly increased by 1517.88% to $190.80 million when compared to the same quarter last year. In addition, ARRIS GROUP INC has also vastly surpassed the industry average cash flow growth rate of 20.08%.
- ARRIS GROUP INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, ARRIS GROUP INC swung to a loss, reporting -$0.38 versus $0.46 in the prior year. This year, the market expects an improvement in earnings ($2.10 versus -$0.38).
- The debt-to-equity ratio of 1.32 is relatively high when compared with the industry average, suggesting a need for better debt level management. Even though the debt-to-equity ratio is weak, ARRS's quick ratio is somewhat strong at 1.07, demonstrating the ability to handle short-term liquidity needs.
- You can view the full analysis from the report here: ARRS Ratings Report