Viavi (VIAV) Appears a Solid Investment Option: Here's Why

Viavi Solutions Inc.’s VIAV current-fiscal earnings estimates have moved up 10.8% over the past year, while that for the next fiscal has risen 9.2%, implying healthy growth potential. Despite the intense market volatility triggered by a tense geopolitical scenario, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Growth Drivers

Viavi boasts a comprehensive product portfolio that offers end-to-end network visibility and analytics that help build, test, certify, maintain and optimize complex physical and virtual networks. The company’s wireless and fiber test solutions are in the early stages of a multi-year investment cycle, fueled by the transition of OEMs and service providers to superfast 5G networks. The healthy growth traction is further demonstrated by the upside in wireless & fiber test, 3D sensing products, optical transport, Ethernet, broadband access, video test and storage network testing markets.

The 5G transition is expected to be disruptive in nature, potentially creating new avenues for industries across the board. 5G is likely to augment the telecommunications industry's scalability, security and universal mobility, thus propelling the proliferation of IoT. Telecom firms are enabling customers to move away from an economy-of-scale network operating model to demand-driven operations. They are ensuring seamless migration to 5G by offering easy programmability and flexible automation. The convergence of network technologies requires significant investments from both traditional carriers (telecom and cable) and cloud service providers. Viavi’s solutions are well-positioned to meet these rapidly changing industry trends, given its technology prowess, product depth and wide customer base.

Viavi engages in targeted restructuring activities to consolidate its operations and better align businesses with evolving market conditions and investment strategies. The company pursues a holistic growth model with strategic acquisitions and focused organic improvement plans. Of late, the OSP (Optical Security and Performance Products) segment has been benefiting from strong demand for 3D sensing and anti-counterfeiting products. The company expects to leverage major secular growth trends in 5G wireless, fiber and 3D sensing to achieve higher revenues and profitability with greater flexibility in the capital structure.

Demand for sophisticated anti-counterfeiting features, which consumers can easily validate without the use of special tools but are difficult to create or simulate using conventional printing technology, has led to the exponential growth of Viavi’s OSP segment. The custom optics products of the company offer an array of advanced technologies and precision optics to meet the specific requirements of customers. Its 3D sensing optical filters and Engineered Diffusers are deployed in smartphones for facial recognition biometric authentication. In addition, optical filters and sensors deployed in autonomous vehicles and IoT devices offer lucrative opportunities for the company.

Shares of the company have gained 77.8% in the past two years compared with the industry’s rise of 88.4%.

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Other Key Picks

KVH Industries, Inc. KVHI, carrying a Zacks Rank #2, is a solid pick within the industry. It delivered an earnings surprise of 20%, on average, in the trailing four quarters.

Despite global supply chain disruptions, KVH Industries is driving growth and margin expansion through new product introduction and subscriber migration to High-Throughput Satellites. The company aims to make decisive inroads into the still-nascent autonomous transportation markets with a strong balance sheet position and zero debt. If KVH Industries manages to effectively mitigate supply chain woes, there could be further room for cash flow expansion.

TESSCO Technologies Incorporated TESS, carrying a Zacks Rank #2, is another key pick. It delivered an earnings surprise of 55.4%, on average, in the trailing four quarters.

Earnings estimates for TESSCO for the current year have moved up 28.8% since March 2021. It offers products to the industry’s top manufacturers in mobile communications, Wi-Fi, wireless backhaul and related products. With over three decades of profound experience, TESSCO delivers complete end-to-end solutions to the wireless industry.

Knowles Corporation KN carries a Zacks Rank #2. It has a long-term earnings growth expectation of 10% and delivered a modest earnings surprise of 14.9%, on average, in the trailing four quarters. Earnings estimates for the current year have moved up 21% since March 2021.

The transformation from an acoustic component supplier to an audio solutions provider has enabled Knowles to migrate to higher-value solutions and increase content per device. This, in turn, has empowered the company to capitalize on the positive macro trends in audio and edge processing solutions.

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