In the booming communication services sector, IP optical networking and advanced communications are set to thrive as new market dynamics drive IP network modernization and tech innovations. The shift toward 5G, cloud applications, and increased home connectivity fuels fresh use cases and revenue growth, offering major opportunities for service providers. Ribbon Communications Inc. (RBBN) is well-positioned to benefit, thanks to its cutting-edge expertise in these high-demand areas.
Penny stocks like RBBN, which often trade below $5, can offer huge gains but come with high volatility risks. Despite its penny stock status, RBBN recently caught the attention of investment firm Rosenblatt, which initiated coverage with a "Buy" rating, highlighting its overlooked status and the potential for significant growth that has not yet been factored into its price.
With analysts predicting a continued rally for RBBN to new highs, this could be the perfect time for investors to jump on this rising star in communications with over 50% upside potential. Let's take a closer look.
About Ribbon Communications Stock
Ribbon Communications Inc. (RBBN), based in Plano, Texas, specializes in cutting-edge communications technology worldwide. Operating through its Cloud and Edge, and IP Optical Networks segments, Ribbon offers various software, hardware, and service solutions. From VoIP and unified communications to 5G networking and optical transport, Ribbon serves diverse sectors like cloud infrastructure, data centers, and telecom networks. Its market cap currently stands at $646.9 million.
Over the last three months alone, RBBN stock has rallied an impressive 43.9% and is up 27.6% on a YTD basis, easily crushing the broader S&P 500 Index's ($SPX) 10.8% and 15.4% returns over the same time frames, respectively. RBBN's 52-week high currently stands at $3.92, set on July 16.
Ribbon Rallies on Q1 Earnings
RBBN stock rose 26.5% on April 24 after the company reported its fiscal Q1 earnings results – which matched Wall Street’s forecasts on the bottom line, but slightly missed on revenue. While revenue decreased 3.5% annually to $179.7 million, the company slashed its adjusted losses by half, bringing it down to $0.01 per share.
IP Optical Networks sales surged for the seventh consecutive quarter, up 9% annually. Thanks to lower product costs and a strong regional mix, the segment's gross margin was 41%. With IP Optical product and service bookings hitting 1.07 times revenue, RBBN is stacking up a solid backlog for Q2.
Ribbon is taking its partnership with Verizon to the next level with a multi-year program that ramps up their collaboration dramatically. Over the next three years, Ribbon will provide products and services to decommission legacy equipment while keeping current services intact. This program leverages Ribbon’s full suite of virtual and cloud-native solutions and is expected to generate over $300 million in revenue. Starting in the third quarter, Ribbon's expertise will help Verizon build cutting-edge networks, showcasing Ribbon’s prowess and setting the stage for similar projects in the future.
Ribbon Communications is expected to announce its fiscal Q2 earnings results after the market closes on Wednesday, July 24. Management projects Q2 revenue between $200 million and $210 million, while non-GAAP gross margin is estimated to range between 53.5% and 54.5%. Adjusted EBITDA is expected to be between $20 million and $25 million. Analysts tracking Ribbon Communications expect the company's Q2 EPS to double to $0.02.
Over the longer term, the company projects fiscal 2024 revenue between $840 million and $870 million, while non-GAAP gross margin is anticipated to be between 53% and 54%. Adjusted EBITDA is estimated to range between $110 million and $120 million.
Analysts foresee a profit of $0.14 per share in fiscal 2024, up 27.3% year-over-year, flattening to $0.13 per share in fiscal 2025.
What Do Analysts Expect for Ribbon Communications Stock?
On July 11, Rosenblatt initiated coverage on the communications technology firm with a “Buy” rating and a $5 price target, implying expected 35% upside.
Rosenblatt analyst Mike Genovese highlighted that the outlook for Ribbon’s high-margin edge and cloud segment has significantly improved, led by the Verizon contract, and boosting chances for more Tier 1 wins in fiscal 2024 and 2025.
Genovese also noted Ribbon’s strong position in the IP Optical segment, which is poised for Telecom Service Provider shifts and increased DCI investments. He said, "Ribbon is well positioned for the spending shifts in its IP Optical segment, such as the Telecom Service Provider shift to Metro from long haul and subsea, and the increasing investment in DCI across all distances (Metro, LH, subsea) by the Web Scale Cloud Providers."
RBBN has a unanimous “Strong Buy” rating from all five analysts covering the stock. The mean price target of $5.67 suggests an upside potential of 53.2% from Friday's close. The Street-high target price of $6.50 for Ribbon Communications, courtesy of B. Riley Securities, implies the stock could rally as much as 75.6%.
