Unified DOCSIS 40 Leadership And Akamai Collaboration Will Drive Future Success

Key Takeaways

• Strong leadership in Unified DOCSIS 4.0 and global expansion positions Harmonic for future revenue growth and market share gains.
  
• Collaboration with Akamai and share repurchase program indicate management's strategic focus on enhanced margins and long-term financial confidence.
  
• Increased competition, technology transitions, and market dynamics may negatively impact Harmonic's revenue growth and financial performance in the short term.

Catalysts

Provides broadband access solutions worldwide.

• Harmonic's strong leadership position in Unified DOCSIS 4.0, despite temporary headwinds in broadband revenue for 2025, underscores expectations for above-trend growth in 2026 and beyond, impacting long-term revenue positively.
  
• Expansion of Harmonic's broadband Rest of World customer base with significant deals, including new wins, indicates potential revenue diversification and growth, which could positively influence future earnings.
  
• The rollout and customer ramp-ups of DOCSIS 4.0 technologies position Harmonic for future revenue growth by modernizing networks and capturing new market share.
  
• Harmonic's collaboration with Akamai for video streaming presents a forward-looking catalyst for growth in the Video SaaS segment, potentially enhancing net margins through higher-margin service offerings.
  
• A new $200 million share repurchase program over three years suggests management's confidence in the company's long-term financial health, potentially boosting EPS through decreased share count.

Harmonic Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Harmonic's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 5.8% today to 6.8% in 3 years time.
• Analysts expect earnings to reach $55.8 million (and earnings per share of $1.2) by about March 2028, up from $39.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.4x on those 2028 earnings, up from 29.7x today. This future PE is greater than the current PE for the US Communications industry at 25.8x.
• Analysts expect the number of shares outstanding to grow by 0.44% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.92%, as per the Simply Wall St company report.

Harmonic Future Earnings Per Share Growth

Risks

• The transition to Unified DOCSIS 4.0 is expected to result in a below-trend year for broadband revenue due to timing and ecosystem dependencies, which could impact overall revenue growth in the short term.
  
• The market is experiencing a slight dip or plateau in spending, driven primarily by operator readiness and the transition, affecting revenue and possibly delaying anticipated growth.
  
• The company plans for a decline in total company and broadband revenue in 2025 due to recent market dynamics, which could negatively impact earnings and financial performance.
  
• There is increased competition from telco and fixed wireless access providers, challenging market share, which could impact revenue and net margins.
  
• Customer order forecasts have been reduced, reflecting ongoing technology transitions, which could impact future revenue stability and growth.

Valuation

• The analysts have a consensus price target of $11.75 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 $14.0, and the most bearish reporting a price target of just $10.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $825.5 million, earnings will come to $55.8 million, and it would be trading on a PE ratio of 30.4x, assuming you use a discount rate of 6.9%.
  
• Given the current share price of $9.96, the analyst price target of $11.75 is 15.2% 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.