Despite several macroeconomic headwinds and recessionary concerns, increased innovation and digital transformation to enhance customer experience could drive the tech industry on a positive growth trajectory. Given the industry’s rising demand, let us probe into some tech stocks, Viavi Solutions Inc. (VIAV) and Eutelsat Communications S.A. (ETCMY) now.
Geopolitical turmoil, sticky inflation, credit crunch brought in by the regional banking failures, and the Fed’s persistent interest rate hikes have triggered fears of an economic slump.
The tech industry, which was most affected by it last year, is poised to stay firm and showcase resilience, despite existing economic challenges. Amid the rising adoption of stand-out technologies, the sector is poised to witness significant growth in the foreseeable future.
Change is constant in the tech industry. Technology is ever-evolving at a rapid pace, enabling faster change and progress. Companies of all sizes are stepping up and pushing boundaries to accelerate digital transformation.
The expeditious use of cutting-edge technologies, such as AI, IoT, cloud computing, and others, drives the global market for digital transformation. Its market size is slated to rise to $6.78 trillion by 2029, exhibiting a CAGR of 20.9%. Moreover, MGI Research estimates that global tech spending will grow to $11.47 trillion in 2026, representing a five-year CAGR of 7.8%.
Furthermore, Andrew Boone, an analyst at Citizens-owned JMP Securities, believes that the reduction of headcount costs would materially improve tech companies' bottom lines.
Against this backdrop, cheap quality tech stocks VIAV and ETCMY, trading under $10, could be solid buys now.
Viavi Solutions Inc. (VIAV)
VIAV provides network test, monitoring, and assurance solutions for communications service providers, enterprises, network equipment manufacturers, original equipment manufacturers, government, and avionics. The company operates through three segments: Network Enablement (NE); Service Enablement (SE); and Optical Security and Performance Products (OSP).
VIAV’s forward non-GAAP P/E of 15.28x is 19.7% lower than the industry average of 19.02x. Its forward EV/Sales of 1.97x is 25.1% lower than the industry average of 2.63x. Its forward Price/Sales multiple of 1.74 is 30.4% lower than the industry average of 2.50.
VIAV’s gross profit margin of 61.63% is 21.9% higher than the 50.56% industry average, while its levered FCF margin of 11.33% is 74.7% higher than the industry average of 6.49%.
VIAV’s optical security and performance products revenue increased 9.6% year-over-year to $77.40 million in the fiscal second quarter that ended December 31, 2022. Its non-GAAP net income and net income per share came in at $31.50 million and $0.14, respectively.
Its total current liabilities stood at $328.70 million for the period ended December 31, compared to $369.30 million for the period ended July 2, 2022.
Street expects its revenue to increase 6.6% year-over-year to $1.19 billion in the fiscal year ending June 2024. Its EPS is expected to grow 27.6% year-over-year to $0.72 in the same year. It surpassed EPS and revenue estimates in three out of four trailing quarters, which is impressive.
The stock gained 1.3% intraday to close the last trading session at $8.78.
VIAV’s POWR Ratings reflect a promising outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value and Quality. VIAV is ranked #15 out of 50 stocks within the Technology - Communication/Networking industry.
To see the additional POWR Ratings for VIAV (Growth, Momentum, Stability, and Sentiment), click here.
Eutelsat Communications S.A. (ETCMY)
Headquartered in Issy-les-Moulineaux, France, ETCMY engages in the operation of telecommunication satellites. It provides video services, such as broadcast DTH, distribution, HD and ultra-HD channels, and occasional use services; connectivity services; and Internet of Things and low earth orbit solutions.
On April 19, Grupo Televisa, a leading producer of Spanish-speaking content, selected ETCMY to further expand the reach of its video services in Europe. This should bolster the company’s commercial relationship with this leading media player.
Also, ETCMY announced that it had signed a multi-year agreement with FOX Sports Mexico, a leading sports broadcaster, to distribute channels across Mexico via ETMCY’s EUTELSAT 117 West A satellite. This should Strengthen ETMCY’s premium 117° West TV neighborhood in Latin America.
At the Annual General Meeting of shareholders on November 10, 2022, the company's board approved the payment of a dividend of €0.93 per share in respect of the financial year that ended June 30, 2022, and the option for the shareholder to receive the entire part of the dividend either in cash or in new shares of the company (scrip dividend). The dividend was paid on December 16, 2022.
ETCMY’s forward EV/EBITDA of 5.51x is 37.3% lower than the industry average of 8.79x. Its forward EV/EBIT multiple of 9.24 is 40.7% lower than the industry average of 15.58.
ETCMY’s gross profit margin of 91.27% is 81.8% higher than the 50.22% industry average, while its levered FCF margin of 28.18% is 277.7% higher than the industry average of 7.46%.
For the half year that ended December 31, 2022, ETCMY’s revenues increased marginally year-over-year to €573.80 million ($630.53 million). Its total operating verticals revenue for the same period stood at €581.90 million ($639.43 million), up 2.3% year-over-year. Moreover, its adjusted discretionary free cash flow stood at €120.60 million ($132.52 million).
Street expects its revenue to increase by 6.4% year-over-year to $1.24 billion for the fiscal year ending June 2023. It surpassed revenue estimates in each of the four trailing quarters.
The stock gained 1.2% intraday to close the last trading session at $1.65.
ETCMY’s strong fundamentals are reflected in the POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade for Stability and Quality. ETCMY is ranked #14 within the same industry.
Click here to see the additional POWR Ratings for ETCMY (Growth, Value, Momentum, and Sentiment).
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VIAV shares were trading at $8.86 per share on Friday morning, up $0.08 (+0.91%). Year-to-date, VIAV has declined -15.70%, versus a 8.83% rise in the benchmark S&P 500 index during the same period.
About the Author: Sristi Suman Jayaswal
The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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