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NEW YORK (TheStreet) -- Shares of Viavi Solutions (VIAV) - Get Viavi Solutions Inc Report were gaining 5.96% to $5.69 Tuesday after activist investor Sandell AssetManagement sent a letter to the communication equipment company that insists on a review of its strategic alternatives.

Sandell Asset Management, which owns about 12 million shares, or 5.1%, of Viavi, outlined a number of actions it believes can enhance the company's value and "reverse the poor governance and performance that has plagued its shareholders."

Those actions include: refreshing the company's board of directors, retaining an independent financial advisor and operational consulting firm, and identifying a new management team with the experience needed to maximize the value of the company's deferred tax assets.

The activist investor said it believes Viavi shareholders can receive more than $10 a share if the company was sold in its entirety. Sandell said that value could increase to more than $12 a share is the company transitioned itself into a "tax advantaged 'platform company'" similar to Jarden (JAH) and Platform Specialty Products (PAH) - Get Element Solutions, Inc. Report.

TheStreet Recommends

TheStreet Ratings team rates VIAVI SOLUTIONS INC as a Sell with a ratings score of D. TheStreet Ratings Team has this to say about their recommendation:

"We rate VIAVI SOLUTIONS INC (VIAV) a SELL. This is driven by some concerns, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its deteriorating net income, disappointing return on equity, generally disappointing historical performance in the stock itself and feeble growth in its earnings per share."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed against the S&P 500 and did not exceed that of the Communications Equipment industry. The net income has significantly decreased by 46.9% when compared to the same quarter one year ago, falling from -$25.40 million to -$37.30 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Communications Equipment industry and the overall market, VIAVI SOLUTIONS INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • The share price of VIAVI SOLUTIONS INC has not done very well: it is down 14.71% and has underperformed the S&P 500, in part reflecting the company's sharply declining earnings per share when compared to the year-earlier quarter. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • VIAVI SOLUTIONS INC's earnings per share declined by 45.5% in the most recent quarter compared to the same quarter a year ago. The company has reported a trend of declining earnings per share over the past two years. However, the consensus estimate suggests that this trend should reverse in the coming year. During the past fiscal year, VIAVI SOLUTIONS INC reported poor results of -$0.37 versus -$0.08 in the prior year. This year, the market expects an improvement in earnings ($0.33 versus -$0.37).
  • The gross profit margin for VIAVI SOLUTIONS INC is rather high; currently it is at 52.05%. Regardless of VIAV's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, VIAV's net profit margin of -8.72% significantly underperformed when compared to the industry average.
  • You can view the full analysis from the report here: VIAV Ratings Report