Capitalising On Broadband Innovation To Drive Long-Term Growth And Market Leadership

Key Takeaways

• Calix is leveraging its transition to offer differentiated broadband experiences, positioning itself for enhanced revenue growth as a comprehensive experience provider.
  
• Strategic efforts to boost customer sales capabilities and go-to-market strategies could enhance Calix and its customers' revenue and net margins.
  
• Delayed contributions from the BEAD program may impact short-term revenue growth, while market commoditization and transitioning customer base pose additional execution risks.

Catalysts

Engages in the provision of cloud and software platforms, and systems and services in the United States, rest of Americas, Europe, the Middle East, Africa, and the Asia Pacific.

• Calix is capitalizing on the transition from being a speed-based network operator to offering differentiated broadband experiences, which could drive increased revenue growth as they position themselves as a comprehensive experience provider.
  
• The company is expanding its reach with growth in remaining performance obligations (RPOs), suggesting strong future revenue streams as more customers invest in Calix's platform, cloud, and managed services.
  
• Calix is set to benefit from the BEAD program, which, although funds have yet to be awarded, will likely lead to increased bookings and shipments, positively impacting revenue starting in 2025.
  
• The company is making strategic shifts to support its customers in building stronger sales capabilities and transforming their go-to-market strategies, which could contribute to higher revenue and improved net margins for both Calix and its customers.
  
• The successful expansion in RPOs indicates increasing adoption and renewals, potentially leading to long-term revenue growth as existing customers expand their use of Calix's solutions.

Calix Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Calix's revenue will grow by 3.4% annually over the next 3 years.
• Analysts assume that profit margins will increase from -2.1% today to 7.1% in 3 years time.
• Analysts expect earnings to reach $69.6 million (and earnings per share of $0.93) by about November 2027, up from $-18.4 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 56.9x on those 2027 earnings, up from -110.9x today. This future PE is greater than the current PE for the US Communications industry at 25.3x.
• Analysts expect the number of shares outstanding to grow by 4.25% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.44%, as per the Simply Wall St company report.

Calix Future Earnings Per Share Growth

Risks

• The BEAD (Broadband Equity, Access, and Deployment) program, while seen as a growth opportunity, has a delayed timeline with real contributions only expected in late 2025, which could impact revenue growth expectations in the short term.
  
• The company's reliance on continuous RPO expansion and larger future deals may create lumpiness and unpredictability in revenue as the size and timing of deals can vary significantly.
  
• Calix's expansion into new product offerings and markets requires significant investment in customer success programs, which might pressure operating margins if revenues do not grow as expected.
  
• As Calix transitions its customer base from traditional network operators to broadband experience providers, there is execution risk, especially with larger enterprises whose organizational inertia can slow adoption, potentially affecting revenue growth.
  
• Market commoditization poses threats, and if Calix's approach to creating a differentiated broadband experience does not resonate or if competitors replicate it, this could negatively affect customer acquisitions and overall earnings.

Valuation

• The analysts have a consensus price target of $43.83 for Calix 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 $50.0, and the most bearish reporting a price target of just $35.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2027, revenues will be $983.8 million, earnings will come to $69.6 million, and it would be trading on a PE ratio of 56.9x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of $30.82, the analyst's price target of $43.83 is 29.7% 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.