Aviat Networks Inc: Small 5G Play Up 361% Year-Over-Year & Could Rise by Another 50%

Massive 5G Potential for Aviat Networks Stock

The immediate future of technology and innovation will be driven by 5G wireless systems. If that wasn’t enough, there’s already intensive research being done on 6G tech.

With the move to higher wireless speeds, there will be major investment opportunities, ranging from small-cap emerging players to mega-caps.

On the smaller end, a compelling play on the evolution of advanced microwave technologies used in wireless infrastructure is Aviat Networks Inc (NASDAQ:AVNW).

My view is that, as wireless speeds accelerate, the demand for innovative technologies will intensify and help drive companies like Aviat Networks.

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AVNW stock already staged a massive 52-week rally from $6.81 in June 2020 to $43.76 on April 8. The rally was highlighted by several breakouts from sideways channels.

Aviat Networks stock has pulled back a bit, but it has been holding to a one-year gain of 361%. AVNW stock is currently looking at holding on to a breakout.

For Aviat Networks stock to continue to climb, the company will need to ride the opportunities in the 5G space.

Chart courtesy of StockCharts.com

My Bull Case for AVNW Stock

Aviat Networks Inc’s five-year revenue picture is muted, and the lack of consistency and growth is obvious.

In 2020, the company generated a five-year revenue low, which was a result of the COVID-19 pandemic.

Fiscal YearRevenues (Millions)Growth
2016$268.7N/A
2017$241.910.0%
2018$242.50.3%
2019$243.90.6%
2020$238.6-2.1%

(Source: “Aviat Networks Inc.” MarketWatch, last accessed May 27, 2021.)

As the world moves out of the pandemic and 5G adoption expands, I’d like to see Aviat Networks show consistent and strong revenue growth. The company’s outlook for the next two years points to revenue growth, albeit I’d like to see a higher growth rate.

For 2021, the company is expected to report revenue growth of 12.1% to $267.5 million, followed by growth of 6.9% to $286.0 million. (Source: “Aviat Networks, Inc. (AVNW),” Yahoo! Finance, last accessed May 27, 2021.)

While the revenue growth could be higher, the company’s valuation is compelling. Aviat Networks Inc is trading at an extremely cheap 1.4 times its consensus 2022 revenue estimate.

The company has also managed to produce earnings before interest, taxes, depreciation, and amortization (EBITDA) income in the last four years, including a 130.1% improvement in 2020.

Fiscal YearEBITDA (Millions)Growth
2016-$17.2N/A
2017$6.3135.5%
2018$8.230.3%
2019$7.2-11.7%
2020$16.7130.1%

(Source: MarketWatch, op. cit.)

As far as the bottom line goes, Aviat Networks Inc reported generally accepted accounting principles (GAAP) earnings-per-share (EPS) profits in the last three years. The decline in 2020 was influenced by the pandemic.

Fiscal YearDiluted GAAP EPSGrowth
2016-$2.86N/A
2017-$0.0897.2%
2018$0.16304.3%
2019$0.87430.5%
2020$0.02-97.3%

(Source: MarketWatch, op. cit.)

On an adjusted basis, the results look much better. Aviat Networks Inc reported $0.76 per diluted share in 2020.

The company’s adjusted profits are expected to jump by 204% to $2.31 per diluted share in 2021 and to $2.64 per diluted share in 2022. (Source: Yahoo! Finance, op. cit.)

The fact that Aviat Networks trades at 13.9 times its consensus 2022 EPS estimate is impressive and supports a higher price.

Moreover, the company managed to produce free cash flow of $12.9 million in 2020, a five-year high.

Fiscal YearFree Cash Flow (Millions)Growth
2016-$1.7N/A
2017$5.4416.7%
2018$1.7-69.4%
2019-$2.3-2.3%
2020$12.9659.7%

(Source: MarketWatch, op. cit.)

Analyst Take

Aviat Networks Inc is well suited to take advantage of the increasing demand for 5G technologies. The estimates are encouraging, and the company’s valuation is attractive, which will provide some downside cushioning.

In addition, more institutions are holding Aviat Networks stock than before. The number of institutions holding Aviat shares jumped from 60 in June 2020 to 119 at the end of April 2021. (Source: Yahoo! Finance, op. cit.)

In my view, AVNW stock could rally by another 50% and still not look overpriced.