COMM Stock Bullish on Solid Q2

Shares of Commscope Holdings Company Inc (NASDAQ:COMM) have been on a tear since the middle of July, advancing 52%. The company's solid second-quarter results point to additional gains over the coming quarters.

Like the broader market, though, Commscope stock is in the red year-to-date (down by 12%) and year-over-year (down by 41%).

Commscope Holdings Company Inc provides infrastructure solutions for communication and entertainment networks, including 5G systems. The company’s segments include Broadband Networks; Outdoor Wireless Networks; Venue and Campus Networks; and Home Networks. (Source: “Strategic Transformation Update,” Commscope Holdings Company Inc, December 14, 2021.)

Its Broadband Networks segment provides an end-to-end product portfolio serving the telecommunications and cable provider broadband market. The segment provides converged cable access platforms; passive optical networking; video systems; access technologies; fiber and coaxial cable; and fiber and copper connectivity.

Commscope Holdings Company Inc's Outdoor Wireless Networks segment focuses on the macro and metro cell markets, including base station antennas, tower connectivity, microwave antennas, and metro cell products.

The company's Venue and Campus Networks segment combines wireless fidelity and switching; distributed antenna systems; licensed and unlicensed small cells; and enterprise fiber and copper infrastructure.

Meanwhile, its Home Networks segment includes subscriber-based solutions that support broadband and video applications.

Chart courtesy of StockCharts.com

Q2 Revenue & Earnings Beat

On August 4, Commscope announced that its revenue for the second quarter increased by 3.2% sequentially and 5.3% year-over-year to $2.3 billion, topping Wall Street calls for revenue of $2.2 billion. (Source: “CommScope Reports Second Quarter 2022 Results,” Commscope Holdings Company Inc, August 4, 2022.)

Its core net sales in the second quarter went up by 8.3% sequentially and 8.5% year-over-year to $1.9 billion.

Commscope Holdings Company Inc’s net loss in the second quarter of 2022 improved to $61.0 million, or $0.36 per share, from a loss of $153.8 million, or $0.82 per share, in the second quarter of 2021 and a loss of $139.9 million, or $0.75 per share, in the first quarter of 2022.

The company reported second-quarter adjusted net income of $299.6 million, or $0.41 per share, up by 24% sequentially but down by 2.6% year-over-year. Analysts were expecting CommScope to report second-quarter adjusted net income of $0.33 per share.

Commscope Holdings Company Inc’s Strategic Initiative

In 2021, Commscope announced a new strategic initiative called "CommScope Next." It's designed to drive shareholder value through profitable growth, operational efficiency, and portfolio optimization.

During the three-month and six-month periods ended June 30, 2021, Commscope Holdings Company Inc had restructuring costs of $58.9 million and $103.3 million, respectively. During the three-month and six-month periods ended June 30, 2022, the company incurred restructuring costs of $14.9 million and $30.5 million, respectively.

Those costs were primarily related to CommScope NEXT, and management expects to continue to incur costs related to the strategic initiative.

As part of its transformation, Commscope Holdings Company Inc announced in 2021 a plan to separate the Home Network business through a spin-off transaction. But supply chain issues in the Home Networks segment have delayed that separation plan.

Charles “Chuck” Treadway, Commscope Holdings Company Inc’s president and CEO, said that, despite the company's $61.0-million quarterly loss, Commscope Holdings Company Inc is heading in the right direction.

“Our second quarter results are a step in that direction, as we have sequentially improved our top-line and profitability, a trend that we expect to continue," said Treadway. (Source: Ibid.)

He continued, "Despite supply chain and other macroeconomic challenges, with our robust backlog and solid demand in our key end markets, we believe we are positioned to deliver a stronger second half.”

A bullish second half of this year could help juice COMM stock. Wall Street is on board, with one analyst raising his 12-month share-price projection from $7.00 to $12.00, pointing to potential gains of approximately 25%.

Analyst Take

Commscope stock has taken a beating over the last year, but the company has noted that the numerous changes it has made in conjunction with its CommScope NEXT transformation plan are designed to “continue to grow [its] business and offset inflationary impacts.”

Despite its big second-quarter loss, Commscope Holdings Company Inc reaffirmed its full-year guidance for core adjusted EBITDA of between $1.15 to $1.25 billion.

All this bodes well for COMM stockholders.