Undervalued Ceragon Stock Has 105% Upside

Ceragon Networks Ltd (NASDAQ:CRNT) is an undervalued penny stock I've been watching for a while. Recently, CRNT stock has, much like the broader market, come under pressure from soaring inflation, rising interest rates, the supply chain crunch, and ongoing fears about an upcoming recession. As of this writing, Ceragon stock is down by one percent year-to-date and 32% year-over-year.

Despite these headwinds, Ceragon Networks Ltd, a leading provider of 5G wireless transport, continues to announce new agreements, 5G design wins, and wonderful financial results. These achievements aren't lost on everyone. The company’s lower share price and high demand for its products might be why Aviat Networks Inc (NASDAQ:AVNW), a competitor, has shown interest in acquiring Ceragon.

In late June, Ceragon confirmed that it had received two letters from Aviat. Those letters included "a request to convene an extraordinary general meeting of shareholders calling for a change in the composition of Ceragon’s Board of Directors, whereby Aviat’s hand-picked nominees would constitute a majority of the Board." (Source: “Ceragon Confirms Receipt of Letters From Aviat Networks,” Ceragon Networks Ltd, June 28, 2022.)

The letters also say Aviat is interested in potentially acquiring Ceragon. Investors will have to wait to see if Ceragon Networks Ltd is interested—and to find out the company’s acquisition price.

Word of the potential acquisition has helped CRNT stock rebound significantly. As of this writing, Ceragon stock is up by 42% over the last month and 22.5% over the last three months.

Chart courtesy of StockCharts.com

CRNT Stock Overview

Ceragon Networks Ltd is an innovative leader in the 5G wireless transport market. The company says it helps operators and other service providers "increase operational efficiency and enhance end customers’ quality of experience with innovative wireless backhaul and fronthaul solutions. " (Source: "Who We Are," Ceragon Networks Ltd, last accessed July 13, 2022.)

Ceragon's 2,000+ customers include service providers, public safety organizations, government agencies, and utility companies around the world. They use Ceragon's solutions to deliver 4G and 5G mission-critical multimedia services and other applications with high reliability and speed. (Source: “Investor Presentation: May 2022,” Ceragon Networks Ltd, last accessed July 13, 2022.)

This helps explain why the company's 4G and 5G network technology is selected by roughly 25% of customers who choose based on value. Meanwhile, Huawei Technologies Co., Ltd is a distant second at 17%.

Ceragon Networks Ltd’s recent business accomplishments include the following:

• The company was selected to provide connectivity to remote Indonesian islands and regions (September 20, 2021)
• Ceragon renewed wireless transport infrastructure for Rai Way, Italy’s national TV and radio network provider (November 8, 2021)
• Globacom Limited, a Tier-1 Nigerian operator, signed a network expansion deal with Ceragon (January 31, 2022)
• The company was awarded a multi-million-dollar contract to deliver connectivity as a service to offshore fields for a major global energy player (February 16, 2022)
• A Tier-1 operator in India placed a $15.0-million initial order with Ceragon for nationwide 4G expansion (February 24, 2022)
• DISH Wireless selected the company for 5G transport solutions (May 2, 2022)

Another Great Quarter

Ceragon Networks Ltd's strong momentum in 2021 has carried into 2022.

The company's revenue in the first quarter ending March 31 increased by 2.9% year-over-year to $70.3 million. Its revenues were generally in line with expectations, which included delays in delivering some of its products due to component shortages and supply chain disruptions. (Source: “Ceragon Networks Reports First Quarter 2022 Financial Results,” Ceragon Networks Ltd, May 2, 2022.)

The company reported high bookings in North America, India, Europe, and Latin America.

Ceragon Networks Ltd reported a first-quarter net loss of $2.3 million, or $0.03 per share. This is compared to a first-quarter 2021 net loss of $1.2 million, or $0.01 per share, and a fourth-quarter 2021 net loss of $12.2 million, or $0.15 per share.

The company ended the first quarter of 2022 with cash and cash equivalents of $25.0 million, versus $17.1 million at the end of 2021.

Ceragon Networks Ltd's CEO, Doron Arazi, noted, “We began the year with accelerated momentum reflected by very strong bookings in Q1. We are witnessing increased operator and private network activity, especially in terms of 5G deployments in North America and Europe.” (Source: Ibid.)

Arazi added,

While we are successfully turning this new momentum into new customers, orders, and bookings, the global component shortage, supply chain disruptions, and shipping issues continue to create irregular volatilities in our industry and adversely impact the conversion of our business successes into revenue increase and healthy margins.

(Source: Ibid.)

Ceragon Networks Ltd's current outlook points to another record year in North America, a record quarter in Europe, continued high demand in India, and a solid performance in Latin America.

The company is forecasting that its 2022 revenue will be in the range of $300.0 to $315.0 million, compared to $290.8 million in 2021.

Analyst Take

Ceragon Networks Ltd has a long, successful history of introducing disruptive technologies for the wireless transitions from 2G to 3G, 3G to 4G, and 4G to 5G.

The company reported excellent 2021 results, which included 20 5G design wins across all regions. For the first quarter of 2022, Ceragon also reported solid results, with the addition of five new 5G customers.

However, the economic challenges that surfaced in 2021 have continued in 2022, negatively affecting the company’s ability to achieve higher revenues and healthier margins. But these headwinds will pass.

For these reasons, Wall Street is very bullish on Ceragon stock. Meanwhile, Aviat Networks Inc wants to acquire the company.