Aviat Networks May be a Good Long-Term Growth Story

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Written By Joel Gbolade

Company Overview

Credits: DepositPhotos

Aviat Networks, Inc. (NASDAQ: AVNW) is a global leader in wireless transport and access solutions, with over 70 years of experience in building advanced networks.

The company provides a large range of products and services, including microwave and millimeter-wave systems, to various sectors such as mobile operators, public safety, utilities, and government agencies across more than 170 countries​.

Recent Financial Performance

In the latest Q3/FY2024 results, Aviat Networks reported some mixed results. Revenues slightly missed expectations, while profitability exceeded them. The company reported a 7.6% increase in revenue to $278 million. This was below the consensus estimate of $290 million. However, profitability improved, with an EBITDA margin expanding to 18.1%​.

Moreover, the recent Pasolink acquisition impacted margins, but favorable working capital movements resulted in some strong cash flow generation. According to management, the Pasolink business was nearly breakeven on an EBITDA basis in the quarter and accretive to free cash flow generation.

Despite slower-than-expected growth in the Pasolink business, due to ongoing customer profitability reviews, management remains optimistic about the acquisition’s long-term benefits​.

Challenges and Revised Guidance

Aviat Networks is facing currency headwinds in the African mobile network business and experiencing cautious spending trends by Tier 1 customers. As a result, the company lowered its FY2024 revenue expectations while keeping its adjusted EBITDA guidance intact.

Additionally, management backpedaled on preliminary FY2025 revenue guidance, indicating that earlier projections were overly enthusiastic:

“we got a little bit overly enthusiastic with respect to our numbers for FY25. We typically put that in the August session and I think we will — we won’t beat that guidance in August. And I would say that $515 million number will be probably the thigh end of the range but we’re not ready to do that. And we discovered some “empty revenue” in Pasolink, so we’re not going to take that”.

Positive Outlook on Pasolink Acquisition

Despite the lowered growth outlook, the Pasolink acquisition is reportedly ahead of plan from an EBITDA and free cash flow perspective. Management continues to expect EPS accretion by Q2/FY2025.

The acquisition has already contributed to a greater oil percentage of production, allowing the company to make debt progress without significantly increasing production​.

Valuation and Market Position

Aviat Networks remains attractively valued from a fundamental perspective. Conservatively assuming FY2025 adjusted EBITDA of $60 million, the company’s EV/EBITDA multiple of 6x is well below the broader U.S. telecommunications equipment industry.

Assigning a more reasonable multiple of 10x yields a $50 price target, providing more than 60% upside from current levels​.

Solid Platform For Future Growth

Credits: DepositPhotos


Aviat Networks reported mixed Q3/FY2024 results and lowered forward growth expectations, mainly due to slower-than-expected ramp-up of revenues from the Pasolink acquisition.

However, Pasolink is ahead of plan in terms of profitability and cash generation, with EPS accretion expected in Q2/FY2025. While the company’s lower growth profile is somewhat disappointing, the issue is more than reflected in Aviat Networks’ heavily discounted valuation relative to the broader U.S. telecommunications industry.

The company’s strong fundamentals, strategic acquisitions, and market position provide a solid foundation for future growth.




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