Pasolink Acquisition, MB Max Product, And Thailand Expansion Will Boost Future Earnings

Key Takeaways

• Pasolink acquisition and MB Max product boost growth prospects and margins through higher capacity and cost efficiency.
  
• Expanding Thai manufacturing and a focus on cybersecurity could improve gross margins and attract more customers in utilities and private networks.
  
• Aviat Networks may face revenue and margin challenges due to supply chain disruptions, dependency on U.S. demand recovery, and risks from acquisitions and regional economic conditions.

Catalysts

Provides microwave networking and wireless access networking solutions in North America, Africa, the Middle East, Europe, Latin America, and the Asia Pacific.

• Aviat Networks expects significant earnings contribution from the Pasolink acquisition, which has been delivering a consistent revenue run rate, supporting future revenue growth and improved earnings.
  
• The upcoming shipment of the new Multi-band Max (MB Max) product is anticipated to enhance Aviat’s product offering by delivering higher capacity and reliability at a lower cost, potentially leading to increased revenues and better margins.
  
• Continued emphasis on enhancing cybersecurity measures aligns with growing global needs for secure communications, potentially attracting more customers and increasing future revenue streams.
  
• Expansion of manufacturing to Thailand is expected to improve lead times and reduce costs, which should positively impact gross margins and overall profitability.
  
• The utility sector and private networks are anticipated to be growth drivers, boosted by opportunities in public safety and rural broadband, supporting revenue expansion and improved financial performance.

Aviat Networks Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Aviat Networks's revenue will grow by 5.8% annually over the next 3 years.
• Analysts assume that profit margins will increase from -0.5% today to 11.4% in 3 years time.
• Analysts expect earnings to reach $58.9 million (and earnings per share of $1.97) by about March 2028, up from $-2.0 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.6x on those 2028 earnings, up from -122.4x today. This future PE is lower than the current PE for the US Communications industry at 25.8x.
• Analysts expect the number of shares outstanding to grow by 0.94% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.29%, as per the Simply Wall St company report.

Aviat Networks Future Earnings Per Share Growth

Risks

• Aviat Networks faces potential supply chain disruptions related to global tariffs, which could negatively impact their ability to deliver products and maintain revenue growth.
  
• The company's revenue is heavily dependent on the recovery of U.S. Tier 1 service provider demand, which remains uncertain and could result in lower-than-expected revenue if these projects are delayed.
  
• There is risk associated with the integration and performance of recent acquisitions, such as Pasolink and 4RF, which could affect future revenue and gross margins if expected benefits do not materialize.
  
• Aviat Networks' performance in certain regions, such as Africa, is impacted by unfavorable economic conditions and currency issues, which could hinder potential revenue growth.
  
• Gross margins have shown volatility due to changes in product mix and geographic revenue distribution, and any adverse changes could negatively impact overall net margins and earnings.

Valuation

• The analysts have a consensus price target of $35.333 for Aviat Networks based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $47.0, and the most bearish reporting a price target of just $30.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $514.0 million, earnings will come to $58.9 million, and it would be trading on a PE ratio of 9.6x, assuming you use a discount rate of 7.3%.
  
• Given the current share price of $18.96, the analyst price target of $35.33 is 46.3% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.