Aviat Networks Inc: This Small 5G Play Could Double

Aviat Networks, Inc: This Small 5G Play Could Double

Holiday Sale on Aviat Networks Stock Means Opportunity

Whether it’s autonomous vehicles, virtual reality, artificial intelligence, or machine learning, the engine needed to drive innovation is 5G technology.

As such, there will be many opportunities for networking and communications companies as bandwidth speeds accelerate. On the small end, there’s Aviat Networks Inc (NASDAQ:AVNW), a provider of microwave technologies that form a part of wireless infrastructure.

In 2021, AVNW stock was up by more than 360% until April, but like the stocks of other small technology companies, it has pulled back since then.

Despite the 29% retrenchment from its 52-week high in April, Aviat Networks stock has rewarded investors with an 83% gain this year, and it continues to present a strong risk/reward opportunity.

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Chart courtesy of StockCharts.com

5G Adoption Could Power AVNW Stock

Aviat Networks Inc’s five-year revenue picture doesn’t exactly make growth investors gravitate toward its stock. The company’s revenue growth has been muted. For Aviat Networks stock to attract upside buying, the company will need to deliver better results.

Aviat Networks Inc’s ability to benefit from the 5G market will be critical in order to drive up its revenues.

At the moment, the company’s revenue growth expectations are lackluster. Analysts estimate that Aviat Networks will report revenues of $291.7 million in fiscal 2022 (ending July 1) and $304.1 million in fiscal 2023. (Source: “Aviat Networks, Inc. (AVNW),” Yahoo! Finance, last accessed December 16, 2021.)

Again, that’s nothing to attract growth investors, so there’s work to be done.

The good news is that AVNW stock has been pulling in value investors. Aviat Networks Inc trades at a mere 1.1 times its consensus fiscal 2023 revenue estimate. This is cheap, and while some would argue that Aviat Networks stock is a value trap, you can’t overlook the attractive valuation.

Fiscal YearRevenues (Millions)Growth
2017$241.9N/A
2018$242.50.3%
2019$243.90.6%
2020$238.6-2.1%
2021$274.915.2%

(Source: “Aviat Networks Inc.” MarketWatch, last accessed December 16, 2021.)

Aviat Networks has reported five straight fiscal years of earnings before interest, taxes, depreciation, and amortization (EBITDA) income. Even during the COVID-19 pandemic, the company managed to power up its EBITDA by 130.1% and 71.2% in fiscal 2020 and fiscal 2021, respectively.

Fiscal YearEBITDA (Millions)Growth
2017$6.3N/A
2018$8.230.3%
2019$7.2-11.7%
2020$16.7130.1%
2021$28.571.2%

(Source: Ibid.)

A look at Aviat Networks Inc’s bottom line shows a spike in its diluted generally accepted accounting principles (GAAP) earnings per share (EPS) to $9.42 per in fiscal 2021.

A major reason for the company’s high diluted GAAP EPS was the inclusion of a deferred domestic income tax credit of $91.0 million, or roughly 82% of the company’s net income. Aviat Networks Inc’s profitability would have still been a major improvement without that tax credit, though.

Adjusting for the tax credit, Aviat Networks reported earnings of $2.26 per diluted share in fiscal 2021. Its adjusted EPS is expected to edge up to $2.46 per diluted share in fiscal 2022 and $2.65 per diluted share in fiscal 2023. (SourceYahoo! Finance, op. cit.)

This gives Aviat Networks Inc a compelling valuation of 12.7 times its consensus fiscal 2023 EPS estimate. While growth investors might not be impressed, value investors should look at AVNW stock.

Fiscal YearDiluted GAAP EPSGrowth
2017-$0.08N/A
2018$0.16304.3%
2019$0.87430.5%
2020$0.02-97.3%
2021$9.4239,999%

(Source: MarketWatch, op. cit.)

In fiscal 2021, Aviat Networks Inc generated strong positive free cash flow of $14.5 million, representing a five-year high for that metric.

Fiscal YearFree Cash Flow (Millions)Growth
2017$5.4N/A
2018$1.7-69.4%
2019-$2.3-2.3%
2020$12.9659.7%
2021$14.512.2%

(Source: MarketWatch, op. cit.)

Analyst Take

Aviat Networks Inc will likely benefit from the expansion of the advanced networking sector, particularly the 5G segment.

While the company’s financial growth rates might not attract growth investors, Aviat Networks stock seems ideal for value investors who are looking for significant price appreciation.

Institutional investors have been jumping on board AVNW stock. The number of institutions holding shares has climbed from about 119 in April to the current 162. Moreover, insiders have been net buyers of Aviat Networks stock. (SourceYahoo! Finance, op. cit.)

Even assigning a reasonable multiple for revenues and earnings, AVNW stock could easily double and not look excessive.