Adtran's Rewarding Investors, as Promised

NEW YORK ( TheStreet) -- There are certain stocks that take off and never look back.

Given that shares of Adtran ( ADTN) are up since reporting strong first-quarter results, it's fair to say that this qualifies as taking off. Had you listened to me, you would have been on a nice joyride. ADTN closed up 14% to $22.46 Wednesday.

Last year presented prolonged struggles for Adtran. The company was constantly in a grind as carriers including AT&T ( T) and Verizon ( VZ) were forced to cut back on their spending due to market uncertainties. Consequently, Adtran stock fell 34%.

That being the case, the Street wasn't expecting much for the first quarter. This is even though management proved in the fourth quarter that it was more than capable of making the best out of a bad situation.

On Tuesday, the company posted adjusted earnings of 13 cents per share on revenue of $143 million, beating on both top- and bottom-line estimates. Granted, revenue growth wasn't stellar since growing at just 4%. But remember, this company is coming from a fourth quarter that saw a 20% revenue drop.

Profitability also arrived strong as the company posted gross margin and operating margin that were above consensus estimates. But not everyone is drinking this Kool-Aid today. Jefferies analyst George Notter, in particular, was not impressed. Notter suggested that Adtran did not provide enough details about the quarterly performance.

However, I thought management was clear enough. It's not as if Adtran's performance deviated that much from what was expected with respect to the company's domestic and international businesses. In that regard, management believes that Adtran is positioned perfectly for any recovery that may be realized with carriers and overall enterprise IT.

This is certainly an interesting situation that Adtran is now in. Earlier this week, we talked about the state of F5 Networks ( FFIV), which also relies on carrier spending. But F5 declared (among other things) that weak carrier spending would be the reason why the company expects to post weaker-than-expected second-quarter results.

Does that suggest that Adtran is gaining market share among the telecoms? Perhaps. That said, investors won't know for certain until more earnings reports are released from Alcatel-Lucent ( ALU) and Ciena ( CIEN).

In the meantime, it is certainly encouraging that Adtran was able to offset the recent slowdown while bigger names including Juniper ( JNPR) and F5 are still trying to find their footing.

I would be surprised if Adtran remains an independent company for the rest of the year. The company's solid broadband access and internet working segments, which should drive long-term growth, should attract some attention.

At the top of my list of suitors are Oracle ( ORCL), which has been building its hardware assets, and possibly Cisco ( CSCO).

With the stock's new popularity, I do wonder if Adtran will pause, look back and give investors a second chance to hop on board. Absent clear signs that carriers have fully opened their wallets, that's not an easy question to answer.

It does, however, affirm that after losing 34% of its value last year, the worst is over for Adtran. It's also encouraging the company announced that its board declared a cash dividend for the first quarter of 2013. With such examples of confidence, it's hard not to expect more gain are on the way.

At the time of publication, the author held no position in any of the stocks mentioned.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.
Richard Saintvilus is a private investor with an information technology and engineering background and the founder and producer of the investor Web site Saint's Sense. He has been investing and trading for over 15 years. He employs conservative strategies in assessing equities and appraising value while minimizing downside risk. His decisions are based in part on management, growth prospects, return on equity and price-to-earnings as well as macroeconomic factors. He is an investor who seeks opportunities whether on the long or short side and believes in changing positions as information changes.