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Viavi Solutions’ (NASDAQ:VIAV) stock fell about 2% premarket on Wednesday after Rosenblatt downgraded the shares to Neutral from Buy.
The firm has an $8.25 price target on the shares of Viavi — which provides network test, monitoring, and assurance solutions for communications service providers.
The analysts noted that they were downgrading Viavi because of their growing worry that the telecom spending weakness of the last two years is more structural than cyclical. This is the same concern that lead to Rosenblatt’s recent downgrade of Ciena (CIEN).
Last month, Rosenblatt downgraded Ciena’s shares to Neutral from Buy, citing restrained optical spending by large telecom companies and lack of AI story for FY24 and FY25, among other things.
Viavi gets more than 50% of revenues from Telecom end-markets, and is particularly exposed to Optical, Wireless and Access spending, according to the analysts.
The analysts see some slight positive catalysts over the next few quarters related to Access, such as Cable upgrades and the BEAD program, but their view of the second-half of 2024 and 2025 Optical and 5G spending remains very cautious.
The secondary reason for the rating cut is that Viavi has been unable to make key strategic acquisitions because it has been outbid by competitors, recently by Keysight Technologies (KEYS) for Spirent.
In March, Keysight made an offer to acquire Spirent Communications (OTCPK:SPMYY) (OTCPK:SPNUF), surpassing a bid made by Viavi for the U.K.-based telecom network testing company.
The analysts added that they were not changing their FY25/FY26 EPS forecasts of $0.40/$0.55, which are below the consensus of $0.47/$0.63.
Viavi has historically traded at a premium to Rosenblatt’s coverage universe, averaging an 18x forward price-to-earnings, or PE, multiple. The new $8.25 price target is based on 15x its FY26 EPS estimate, which is a slight discount to the 16x median multiple of the peer group, the analysts noted.
Viavi (VIAV) has a Sell rating at Seeking Alpha’s Quant Rating system, which consistently beats the market. Meanwhile, the average Wall Street analysts’ rating is more positive, with a Buy rating.
