ADTRAN, Inc. (ADTN) recently delivered its 11th consecutive positive earnings surprise as sales jumped 23% to reach a quarterly record $184.2 million.
Analysts have been revising their estimates higher off of the strong quarter, sending the stock to a Zacks #2 Rank (Buy). Based on current consensus estimates, analysts project 23% EPS growth this year and 10% growth next year.
Additionally, ADTRAN pays a dividend that yields a solid 1.2%. Valuation is attractive too, with shares trading at just 13.6x forward earnings.
Company Description
ADTRAN, Inc. provides networking and communications equipment which enables voice, data, video, and Internet communications across a variety of network infrastructures. Its products are used by service providers, private enterprises, government organizations, and millions of individual users worldwide.
The company is headquartered in Huntsville, Alabama and has a market cap of $1.9 billion.
Second Quarter Results
ADTRAN recently reported better than expected results for the second quarter of 2011. Earnings per share came in at 56 cents, beating the Zacks Consensus Estimate by 3 cents. It was a 27% increase over the same quarter in 2010.
Sales jumped 23% to a record $184.2 million in the quarter, ahead of the Zacks Consensus Estimate of $179.0 million. It was ADTRAN’s fifth consecutive quarter of record revenue.
Sales growth was led by the Carrier Networks division, which increased a whopping 54%. Within this segment, Broadband Access grew 71% year-over-year, driven by the company’s Total Access 5000 and Fiber-to-the-Node platforms.
Sales in the company’s Loop Access division fell 20% as customers shifted away from its HDSL product. The company expects this migration to continue in the future, but this decline is expected to be more than offset by its fast growing Broadband and Optical Access products.
Meanwhile, the operating margin expanded from 25.7% of sales to 27.9% as the company leveraged its fixed expenses. This led to a 33% increase in operating income.
Outlook
Consensus earnings estimates rose following the company’s latest earnings beat, sending the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2011 is now $2.19, which represents solid 23% growth over 2010 EPS. The 2012 Zacks Consensus Estimate is currently $2.40, corresponding with 10% EPS growth.
As you can see in the Price & Consensus chart, consensus estimates have been moving significantly higher over the last several months as ADTRAN has delivered 11 consecutive positive earnings surprises:
Dividend
The majority of tech stocks do not pay a dividend, so it may be surprising to learn that ADTRAN yields a solid 1.2%. In fact, the company has consistently paid a quarterly dividend since 2003.
It hasn’t raised it since 2005, however. But with a payout ratio of just 17%, it has plenty of room for a dividend hike.
Valuation
Valuation looks very reasonable for ADTN. Shares trade at just 13.6x 2011 earnings estimates, a discount to the industry average of 16.2x.
Its price to sales ratio of 2.8 is well above its peers at 1.3, but when you consider that its profit margins are significantly higher, this premium appears to be justified.
The Bottom Line
With record revenue, expanding margins, rising earnings estimates and a solid dividend, ADTRAN looks attractively priced at just 13.6x earnings.
Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research.
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