Aviat Networks Inc: 5G Play Is Up 117% Since March, Breakout Starting

Aviat Networks Inc: 5G Play Is Up 117% Since March, Breakout StartingAviat Networks, Inc Breaks Higher on 5G Optimism

The importance of 5G wireless technologies is massive. This was fully demonstrated over the past few years as President Donald Trump aimed to halt China-based Huawei Technologies Co., Ltd.

The focus on developing 5G technologies will provide strong tailwinds for U.S. companies, including Aviat Networks Inc (NASDAQ:AVNW).

Aviat develops advanced microwave technologies used in wireless infrastructure. With the U.S. move to accelerate 5G technologies, AVNW is perfectly situated to adapt to the wireless 5G transformation.

Aviat Networks Inc has a market valuation of a mere $96.0 million. This not only makes the upside potential of AVNW stock huge, but also makes Aviat open to takeovers, given the small size of the company.

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Of course, there’s a lot of work ahead for Aviat to succeed and compete in a world dominated by the major companies, but it has to start somewhere.

AVNW shares are already up 117% over the past three months after plummeting to a 52-week low of $7.10 during the March sell-off.

Aviat Networks Stock Chart Points to Higher Price

The technical picture for AVNW stock is bullish. The shares staged a strong V-shaped rally following the March sell-off. This was followed by a bullish upside trade gap to above the 50-day and 200-day moving averages.

The below chart shows a potential bullish golden cross if the 50-day moving average breaks above the 200-day moving average.

Chart courtesy of StockCharts.com

The buying in Aviat Networks stock was supported by strong relative strength and multiple moving average convergence/divergence (MACD) “buy” signals.

The key for Aviat Networks will be achieving operational execution and expanding into the 5G space.

My Bull Case for AVNW Stock

At first glance, Aviat Networks Inc’s five-year revenue picture doesn’t look awe-inspiring, but the hope is that the opening of the 5G space will provide tons of opportunities for the company to succeed and reward investors.

Fiscal Year Revenues (Millions) Growth
2015 $335.5
2016 $268.7 -19.9%
2017 $241.9 10.0%
2018 $242.5 0.3%
2019 $243.9 0.6%

(Source: “Aviat Networks Inc.MarketWatch, last accessed June 29, 2020.)

For now, Aviat Networks faces muted revenue expectations. Revenues are estimated to contract to $240.1 million in fiscal 2020 and then rise to $248.1 million in fiscal 2021. (Source: “Aviat Networks, Inc. (AVNW),” Yahoo! Finance, last accessed June 29, 2020.)

An encouraging sign is that AVNW has managed to produce positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in the last three fiscal years.

Fiscal Year EBITDA (Millions) Growth
2015 -$10.6
2016 -$17.8 -67.4%
2017 $6.3 135.5%
2018 $8.2 30.3%
2019 $7.2 -11.7%

(Source: MarketWatch, op. cit.)

Aviat Networks Inc also turned a record diluted earnings per share (EPS) of $1.73 share in fiscal 2019, based on generally accepted accounting principles (GAAP).

Fiscal Year Diluted GAAP EPS Growth
2015 -$4.80
2016 -$5.71 -19.0%
2017 -$0.16 97.2%
2018 $0.33 304.2%
2019 $1.73 430.5%

(Source: MarketWatch, op. cit.)

AVNW is expected to stay profitable, but earnings are slated to fall to $1.05 per diluted share in fiscal 2020 before jumping to $1.30 in fiscal 2021. (Source: Yahoo! Finance, op. cit.)

The move to steady profits will help drive positive free cash flow.

Fiscal Year Free Cash Flow (Millions) Growth
2015 -$12.7
2016 -$1.7 86.6%
2017 $5.4 416.7%
2018 $1.7 -69.4%
2019 -$2.3 -239.9%

(Source: MarketWatch, op. cit.)

Analyst Take

With a market cap of less than $100.0 million, Aviat Networks Inc could easily be a takeover target for a bigger company. And despite Aviat’s small size, 60 institutions hold a 56% interest in the company. (Source: Yahoo! Finance, op. cit.)

And as of this writing, Aviat Networks stock trades at 13.8 times its consensus fiscal-2021 EPS estimate and at only 1.4 times book value, which is stellar for a small tech company.