Friday, December 31, 2010

ADTRAN (NASDAQ:ADTN) Driven by New Product Categories

After several years of flat sales, GARP Research says ADTRAN (NASDAQ:ADTN) has turned things around in 2010, and are poised to grow as three new product categories shore up the company and its mature products.

GARP said, "After four years of flat sales, 2010 marks an exciting inflection point for ADTRAN. Three new product categories, Broadband Access, Optical Access, and Internetworking, are now meaningfully offsetting a secular decline in the firm’s mature products which represented nearly half its sales in 2009, down from 70% in 2005. We think the US is on the cusp of a multi-year infrastructure upgrade, which will phase out voice-based platforms designed two decades ago and usher in new Ethernet enabled equipment optimized to carry data and video traffic. ADTRAN’s TA5000 multi-service broadband access platform sits at the forefront of this trend.

"ADTRAN typically prices its products at substantial discounts to its large peers—up to 30% in some cases. Remarkably, this has not hurt profitability and its 20%+operating margin is about twice its rivals and rising. Despite this fundamental momentum and a commendable run in 2010, ADTN trades at under 16x our 2011 EPS estimate, and under 12x our 2013 estimate ex. $5.75/sh net cash."

GARP Research maintains a "Buy" rating on ADTRAN, which closed Thursday at $36.38, up $0.17, or 0.47 percent.

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