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Why Adtran Remains 20% Undervalued on Long-Term Pricing Strength

NEW YORK (TheStreet) -- Adtran  (ADTN - Get Report) stock has been under pressure for most of 2014. This has never made sense to me.

With the stock closing Thursday at $23.14, the manufacturer and seller of networking and communications equipment has lost roughly 14% of its value year to date and is 7% away from a new 52-week low. But Wall Street has this story wrong. Although carrier spending still remains a question mark, management continues to make moves to diversify the business to compete more effectively and spur long-term growth.

Adtran has emerged as one of the better operating companies within the telecom space. Given the company's mix of equipment, communication services, and pricing strength, these shares should reach $28 (up 20%) by the end of the year.

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Adtran's deal with Nokia (NOK) to acquire the fixed-line Broadband Access business (Nokia Network and Solutions (NSN)) was the most recent example of the company's aggressiveness. Not wasting any time, management has already expanded its dealer base to 70 new partners to capitalize on growth opportunities.

Adtran, which competes against the likes of Cisco (CSCO) and Ciena (CIEN), is now using its supply chain advantages to build its portfolio of products to advance NSN, especially in international markets.

To the extent management can leverage NSN to grow Adtran's position in international markets, the company would have removed one layer of a disadvantage it might have had against Cisco. For that matter, despite Cisco's aggressive price cuts in the past couple of quarters, Adtran's margins have remained solid.

All told, Adtran management, whose goals have always centered on empowering their customers and partners, has exceeded all expectations in terms of revenue and profits. And the moment carriers like Verizon (VZ) and AT&T (T) stop starving themselves and reinvest capital back into their infrastructure, Adtraan's stock will trend higher.

The company is well positioned both in the U.S. and abroad, to seize a nice chunk of the expected demand in carrier volume for things like mobile broadband infrastructure upgrades.

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