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ADTRAN (ADTN) Down More Than 21% in 3 Months: Here’s Why


Shares of ADTRAN ADTN have struggled for quite some time now due to multiple headwinds. Consequently, the stock declined 21.1% in the last three months, significantly underperforming its industry’s rally of 6.9%.

Dismal Q4 Likely

High costs are limiting bottom-line growth at ADTRAN for quite some time and the scenario is unlikely to change in fourth-quarter 2017. Detailed results should be out later this month.

The below-par guidance issued by the company for the fourth quarter is in line with ADTRAN’s recent struggles. Revenues for the quarter are estimated to be around $125 million (previous guidance: $155-$165 million). The top line is projected to shrink 22.8% on a year-over-year basis. Additionally, the company expects revenues for the first quarter of 2018 at around the same range of its fourth-quarter 2017 revenues.

In the final quarter of 2017, earnings per share (adjusted) are anticipated at around a penny. Fourth-quarter and full-year 2017 earnings are projected to decline 125% and 5.6% year over year, respectively. The negative sentiment surrounding the stock can be gauged from the fact that the Zacks Consensus Estimate for 2017 earnings has declined 24.4% over the last 90 days.

The company’s performance in the fourth quarter is likely to be significantly hindered by a merger-related review and slowdown in its spending at a domestic Tier 1 customer. ADTRAN’s below par guidance, issued in December 2017, negatively impacted not only its own shares but those of telecom equipment providers like Clearfield CLFD.

Zacks Rank & Style Score

In view of this gloomy scenario, we believe that investors should stay away from the stock right now. ADTRAN’s Zacks Rank #4 (Sell) also supports our view, indicating that the stock is likely to underperform the broader market over the next one to three months.

Furthermore, the company’s Momentum Score of D highlights its short-term unattractiveness.

Stocks to Consider

Some better-ranked stocks in the broader Computer and Technology sector are Analog Devices, Inc. ADI and Analogic Corporation ALOG. While Analog Devices sports a Zacks Rank #1 (Strong Buy), Analogic carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Shares of Analog Devices and Analogic have rallied more than 16% and 19%, respectively, in the last six months.

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