Telecommunications company Clearfield Inc. (NASDAQ:CLFD) recently reported fiscal second-quarter revenues grew 80 percent and earnings were up 154 percent when compared with the same period last year.
The Minneapolis-based company also said its backlog rose 34 percent sequentially (604 percent year over year) to a record $136 million.
Based on CLFD’s financial performance, sector trends and the fact that $65 billion is set to pour into the space via the Biden Infrastructure Bill (BEAD program) and the Rural Development Opportunity Fund (RDOF), StoryTrading contributor Chris Tabert recently presented the company to our community as a VIP Pick.
Following is a look at CLFD through the lens of StoryTrading’s four pillars: Fundamentals, Catalysts, Sentiment, and Technicals.
Overview
CLFD specializes in fiber optic management and delivery products for communication networks. Its customers include Tier 1 carriers (ILEC, LECs), competitive local exchange carriers (CLECs), cable/MSO companies, Tier 3 providers, such as small municipalities, utilities, and community broadband providers, along with North America international providers.
A majority of CLFD’s revenue comes from Tier 2 and Tier 3 markets where they have an estimated 50 percent market share that continues to grow.The bulk of government grants have just started flowing into this space and should increase Clearfield’s backlog.
The company has invested significantly in Tier 1 markets in recent years, ensuring its product line meets stringent specifications. CLFD’s market penetration is still small, which presents an opportunity for growth.
CLFD markets its products as offering substantial cost savings due to their modular, scalable, easy-to-install and less resource intensive designs that can save providers 15 to 25 percent over their competitors’ offerings.
Fundamentals
Last quarter Clearfield posted 80 percent growth with $53 million in revenue or 53 percent of its backlog. The company could have posted additional growth of 20 to 30 percent if production was fully ramped up, bringing earnings per share to $.80. Clearfield is in the process of tripling production at their facility in Mexico and doubling at its headquarters. This should be completed in the next two quarters.
If CLFD can raise its backlog conversion rate to 70 percent of the current $136 million, revenues would be $95.2 million. Using the same percent of net income generates earnings of $1.20 per share. Annualizing EPS at $4.80 with 30 P/E equals $144 a share.
Even if there is multiple compression due to an unfavorable macro environment, a 20 P/E at $4.80 per share equals $96 a share.
Three analysts are covering the stock, including Needham, Lake Street, and Northland Capital Markets. Needham has the highest price target of the three at $92 a share. CLFD is Needham’s top pick for 2022.
Catalysts
As noted in Clearfield’s last earnings call, the impact from government programs has only just started to come in. The full effects are still a couple quarters away. In the Q&A portion of CLFD’s annual shareholder’s meeting in January 2022, CEO Beranek commented that the company is seeing growth beyond the 60 to 70 percent they are already experiencing.
There are different expectations on how long this super cycle of fiber buildout will last. Based on varying analyst reports, it could last until 2030, if not longer. Government programs almost always take longer to roll out, and the rollout of 5G has certainly had its fair share of delays.
That being said, demand for fiber and high-speed bandwidth is likely to continue to grow for many years to come.
Sentiment
Investors are taking a wait-and-see approach to CLFD, with all eyes on whether supply-chain issues cause any hiccups.
If the company continues to perform and analysts ratchet up their projections, confidence will build.
Technicals
Technically, CLFD is not yet showing signs of a breakout. CLFD sits below all three major moving averages on the daily chart and on the weekly chart, it’s trying to hold the 50 week moving average but currently sits just below it.
A major key moving average needs to break before momentum can be regained to the upside.
Summary
The StoryTrading community empowers individuals to make the best-informed trade and investment decisions through a holistic view of stocks based on the four pillars of Fundamentals, Catalysts, Sentiment, and Technicals. Analyzing all four pillars together can also help identify key inflection points.
CLFD’s fundamentals are moving in the right direction with government infrastructure bills serving as a catalyst. However, investor sentiment remains cautious until there is more evidence the company will not get hung up on supply chain issues. Technicals <insert Rex Man’s comment>.
The question is whether CLFD can make good on infrastructure deals and continue to grow over the next several years. That's for you and the rest of the market to determine. We'll be here to tell the story as events develop!
Disclaimer: The Author has a LONG position in CLFD.
