The COVID-19 pandemic has significantly changed the way many people work. And the current rollout of 5G infrastructure has been contributing to the support of increasingly imperative connected services. This, along with broader availability of compatible mobile devices, makes the prospects bright for companies offering services, software and infrastructure related to 5G.
According to a new market research report, the 5G infrastructure market is expected to hit $57.5 billion by 2026, growing at a CAGR of 72.40% during 2021-2026. While most of the prominent 5G companies are trading at lofty valuations, one could still capitalize nicely on this trend by betting on lesser-known stocks in this pace that are strategically positioned to ride the wave.
Lumentum Holdings Inc. (LITE)
Headquartered in San Jose, California LITE manufactures and sells optical and photonic products worldwide. The company operates primarily through two segments — Optical Communications (OpComms) and Commercial Lasers (Lasers). LITE’s OpComms products include a range of components, modules and subsystems to support and maintain its customers in its two primary markets — Telecom and Datacom. The stock has a trailing-12-month ev/s of 3.91x versus the industry average 4.78x.
For the fiscal 2021 second quarter ended December 26, 2020, the company’s net revenue increased 4.6% year-over-year to $478.80 million. Its gross profit increased 21.4% year-over-year to $229.60 million. Its net income increased 69.5% year-over-year to $83.2 million, while its on-GAAP EPS was reported to be $1.99, representing a30.1% increase year-over-year.
Analysts expect the company’s revenue to increase 12.8% for the quarter ending June 30, 2021, 6% in fiscal 2021 and 11.9% in 2022. LITE’s EPS is expected to grow 11.9% for the quarter ending March 31, 2021, 18.6% in fiscal 2021 and at a rate of 14.6% per annum over the next five years. LITE has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters.
In January, entered a definitive agreement with Coherent, Inc. (COHR) to acquire COHR in a cash and stock transaction valued at $5.7 billion. This is expected to combine COHR’s leading photonics and lasers businesses with LITE’s leading Telecom, Datacom, and 3D Sensing photonics businesses. The company commented on an unsolicited acquisition proposal for COHR from MKS Instruments, Inc. (MKSI). LITE noted that it believes that the proposed merger between LITE and COHR is “superior to the deficient MKS proposal”.
LITE acquired certain technology assets of TriLumina Corporation in November 2020, including its patents and other intellectual property. TriLumina technology includes innovative flip-chip, back-emitting VCSEL arrays for use in a wide range of applications, including 3D sensing, automotive safety and driver assistance systems and LiDAR, and other emerging applications. The stock has gained more than 14% over the past three months to close yesterday’s trading session at $94.23.
LITE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
The stock also has a B grade for Growth and Quality. Click here to access LITE’s grades for Value, Momentum, Stability and Sentiment.
The stock is ranked #15 of 57 stocks in the B-rated Technology Communication/Networking industry.
Cambium Networks Corporation (CMBM)
Founded in 2011, CMBM is engaged in wireless broadband networking infrastructure services for network operators, including medium-sized wireless internet service providers, enterprises and government agencies. The company offers its wireless broadband solutions in five categories — Point-to-Point (PTP) backhaul portfolio, Point-to-Multiple (PMP) distribution, cnPilot cloud-managed Wi-Fi solutions, cnMatrix cloud-managed wireless-aware switching solutions, and cnReach family of narrow-bandwidth connectivity products. The stock has a trailing-12-month ev/s of 4.32x (versus the industry average of 4.78x).
The company is expected to report results for the fourth quarter and full year ended December 31, 2020 on February 18. CMBM reported record revenue of $72.97 million for the third quarter ended September 30, 2020, up 11.1% year-over-year. Its gross profit increased 13.3% year-over-year to $36.07 million and its gross margin was 49.4%. Its net income increased 185.5% year-over-year to $5.60 million and non-GAAP EPS increased 93.3% year-over-year to $0.29.
Analysts expect the company’s revenue to increase 21.2% for the quarter ending March 31, 2021 and 14.4% in fiscal 2021. CMBM’s EPS is expected to grow 200% for the quarter ended December 31, 2020, 340% for the quarter ending March 31, 2021 and at a rate of 20% per annum over the next five years. CMBM has an impressive earnings surprise history; it beat consensus EPS estimates in each of the trailing four quarters.
According to results released by the Tolly Group, a premier independent testing and analysis lab, Wi-Fi 6 wireless access points from CMBM have outperformed competitors Aruba, Meraki and Ruckus in terms of performance and Total Cost of Ownership (TCO). CMBM launched the new ePMP Force 400 series on February 1. It is a point-to-point system with gigabit speed fixed wireless connectivity in the Sub-6 GHz spectrum. With it, service providers and enterprises can rapidly extend connectivity and expand capacity without the cost of licensed spectrum, expensive subscriptions or trenching fiber.
Over the past six months, the stock rallied 234.2% to close yesterday’s trading session at $43.05. It is currently trading 3.6% below its 52-week high of $44.66.
CMBM’s POWR Ratings reflect its promising outlook. The stock has an overall rating of B, which translates to a Buy in our proprietary rating system.
The stock has an A grade for Growth and B grade for Momentum, Sentiment and Quality. In addition to the POWR Ratings grades I’ve just highlighted, you can see CMBM’s ratings for Value and Stability here.
The stock is ranked #8 in the same industry.
The POWR Ratings are calculated by considering 118 different factors with each factor weighted to an optimal degree.
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LITE shares were trading at $92.53 per share on Wednesday afternoon, down $1.70 (-1.80%). Year-to-date, LITE has declined -2.39%, versus a 4.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Manisha Chatterjee
Since she was young, Manisha has had a strong interest in the stock market. She majored in Economics in college and has a passion for writing, which has led to her career as a research analyst. More...
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