Unified DOCSIS 40 And Fiber-to-the-Home Strategy Will Drive Future Market Expansion

Key Takeaways

• Harmonic’s technologies and strategies position the company for increased market presence and revenue growth.
  
• Restructuring and new streaming opportunities aim to boost profitability and sustain long-term growth.
  
• Dependency on major clients, supply chain risks, and slow Video segment growth pose challenges to revenue stability and profitability.

Catalysts

Provides broadband solutions worldwide.

• Harmonic’s Unified DOCSIS 4.0 technology, now available to all cable broadband providers, is positioned to expand their market presence, leading to increased future revenue as more operators plan upgrades.
  
• The company's expansion in the fiber-to-the-home strategy and collaboration with partners like Tribal Ready may drive additional revenue growth through new customer acquisitions and increased market penetration.
  
• Implementation of restructuring actions in the Video segment aims to improve cost efficiency and profitability, thereby enhancing net margins and contributing to future earnings.
  
• Harmonic’s success in securing Tier 1 SaaS streaming opportunities and the new in-stream advertisement solution could bolster revenue streams beyond 2025, supporting sustained growth in earnings.
  
• The potential demand for full-duplex nodes due to the Unified ecosystem, paired with ongoing engagements with new customers, highlights future revenue opportunities despite short-term headwinds from deployment timing delays.

Harmonic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Harmonic's revenue will grow by 10.1% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.6% today to 21.0% in 3 years time.
• Analysts expect earnings to reach $174.6 million (and earnings per share of $1.52) by about December 2027, up from $84.9 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 11.9x on those 2027 earnings, down from 18.1x today. This future PE is lower than the current PE for the US Communications industry at 24.7x.
• Analysts expect the number of shares outstanding to decline by 0.39% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.7%, as per the Simply Wall St company report.

Harmonic Future Earnings Per Share Growth

Risks

• The potential delay in customer deployments due to ecosystem integration and development requirements with Unified DOCSIS 4.0 technology could result in lower than expected Broadband revenue growth in the near term.
  
• The significant customer concentration, with Comcast and Charter accounting for a substantial percentage of revenue, poses a risk to revenue stability if these customers adjust their procurement strategies.
  
• Dependency on timely availability and maturity of full-duplex RF amplifiers for some customer segments introduces supply chain risks that could impact deployment schedules and revenue recognition.
  
• The Video segment has shown minimal revenue growth and faces macroeconomic challenges, which might adversely impact overall company revenue growth and net margins.
  
• The restructuring actions and associated costs in the Video business might affect profitability in the short term, potentially impacting net earnings despite anticipated longer-term savings.

Valuation

• The analysts have a consensus price target of $14.93 for Harmonic 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 $18.0, and the most bearish reporting a price target of just $12.5.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $832.5 million, earnings will come to $174.6 million, and it would be trading on a PE ratio of 11.9x, assuming you use a discount rate of 6.7%.
• Given the current share price of $13.22, the analyst's price target of $14.93 is 11.4% 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.