Telecom Equipment Providers Fall After Adtran Cuts Guidance

Telecommunications equipment companies are falling after Adtran (ADTN) issued guidance for its fourth and first quarters this morning.

GUIDANCE: Adtran revised revenue and earnings estimates for Q4 ending December 31, forecasting adjusted earnings per share of roughly 1c on revenue of $125M. Previous guidance saw Q4 revenue between $155M-$165M. The guidance compares to analyst estimates of 14c and $161.28M, respectively. The company added that current expectations for Q1 will be in the range of this quarter, which compares to analyst estimates of $167.53M. ADTRAN CEO Tom Stanton said, “Our performance this quarter has been significantly impacted by a merger-related review and slowdown in the spending at a domestic Tier 1 customer. Our current understanding is that this review will be completed in 60 to 90 days, at which time capital plans will be finalized. Going forward, recent awards and trials in Tier 1 customer accounts, both domestically and abroad, leave us very confident about our positioning.”

ANALYST REACTION: Following the announcement, MKM Partners analyst Michael Genovese lowered his price target on Adtran to $25 from $27, citing the company’s reduced Q4 guidance. Genevese said this customer is likely CenturyLink (CTL), which accounted for 24% of Adtran’s total sales in 2016 and was likely Adtran’s largest customer in 2017. The analyst notes this weakness is likely to be temporary, adding that Adtran performance will likely accelerate into 2019 as the company stands to benefit from 5G spending. He added that he expects the net neutrality repeal and tax reform to be beneficial to telecommunications capital expenditures spending. Genovese keeps his Buy rating on Adtran. Meanwhile, Lake Street analyst Jaeson Schmidt said Adtran’s lowered Q4 outlook is a net negative for Clearfield (CLFD). A muted spending environment could create headwinds for the company in the first half of fiscal 2018, but he added that he still likes Clearfield longer term. Schmidt kept a Buy rating on Clearfield shares.