Avaya Holdings Corp. (AVYA - Get Rating) and its subsidiaries provide digital communications products, solutions, and services for businesses worldwide. The company operates in two segments-Products & Solutions and Services.

On May 13, 2022, AVYA and Microsoft Corporation (MSFT) expanded their global partnership by clubbing the industry-leading AVYA OneCloud™ and MSFT Azure to help organizations increase their productivity and customer engagement using advanced tech facilities. This should prove strategically beneficial for the company.

However, AVYA has lost 70.2% over the past month to close the last trading session at $0.72. Moreover, it has lost 96.3% year-to-date and 96.4% over the past year. The stock is currently trading 96.8% below its 52-week high of $22.47, which it hit on November 22, 2021.

Here is what could shape AVYA’s performance in the near term:

Bleak Financials

For the third quarter ended June 30, 2022, AVYA’s total revenue came in at $577 million, down 21.2% year-over-year. The company’s products revenue came in at $169 million, down 33.5% year-over-year. Also, its services revenue came in at $408 million, down 14.6% year-over-year.

Furthermore, the company’s operating loss came in at $1.35 billion, compared to an operating income of $41 million in the prior-year period. In addition, its non-GAAP net loss came in at $20 million, compared to an income of $73 million in the year-ago period, while its non-GAAP loss per share came in at $0.24, compared to an EPS of $0.75 in the previous period.

Poor Profit Margins

AVYA’s trailing-12-month net income margin of negative 53.11% is substantially lower than the industry average of 4.25%. Its trailing-12-month EBIT margin of 1.37% is 81.5% lower than the industry average of 7.42%. Also, its trailing-12-month EBITDA margin of 8.93% is 31.6% lower than the industry average of 13.05%.

Moreover, its trailing-12-month ROTC of 0.84% is 79% lower than the industry average of 3.98%, while its trailing-12-month negative ROTA of 33.87% is significantly lower than the industry average of 2.74%.

Unfavorable Analysts’ Expectations

AVYA’s revenue has declined at a CAGR of 4.3% over the past five years. Its EBITDA has declined at a 16.7% CAGR over the past three years.

Analysts expect AVYA’s revenue to decrease 12% year-over-year in 2022 and 4.4% in 2023. Its EPS is estimated to decrease 69% year-over-year in 2022 and 5.1% in 2023. It missed consensus EPS estimates in three of the four trailing quarters.

POWR Ratings Reflect Bleak Prospects

AVYA has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

AVYA has an F grade for Sentiment, consistent with unfavorable analysts’ expectations. It has a D grade for Growth and Quality, in sync with its bleak financials in the latest reported quarter and lower than industry profit margins, respectively.

Also, the stock has a D grade for Stability, consistent with its beta of 1.42.

In the 53-stock Technology – Communication/Networking industry, AVYA is ranked #50. The industry is rated C.

Click here for the additional POWR Ratings for AVYA (Value and Momentum).

View all the top stocks in the Technology – Communication/Networking industry here.

Bottom Line

AVYA has witnessed a freefall over the past months amid lingering macro headwinds. It’s currently trading below its 50-day moving average of $2.16, and given the stock’s weak fundamentals, I think AVYA is best avoided now.

How Does Avaya Holdings Corp. (AVYA) Stack Up Against its Peers?

While AVYA has an overall POWR Rating of D, one might consider looking at its industry peers, AudioCodes Ltd. (AUDC - Get Rating), Extreme Networks, Inc. (EXTR - Get Rating), and Viavi Solutions Inc. (VIAV - Get Rating), which have an overall A (Strong Buy) rating, and Telefonaktiebolaget LM Ericsson (publ) (ERIC - Get Rating), which has an overall B (Buy) rating.

AVYA shares fell $0.02 (-3.12%) in premarket trading Monday. Year-to-date, AVYA has declined -96.36%, versus a -10.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Riddhima Chakraborty

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries. More...

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