Please ensure Javascript is enabled for purposes of website accessibility

Why CommScope Holding Company Inc. Fell Today

By Anders Bylund – Updated May 4, 2017 at 1:28PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

In-line earnings were ignored as management slashed its full-year guidance.

What happened

Shares of CommScope Holding Company (COMM -0.97%) fell as much as 19.1% in early trading on Thursday. After the initial panic, which was triggered by CommScope's first-quarter earnings report, the stock recovered slightly to settle down near a 15% drop from Wednesday's closing prices.

So what

The network design and installation specialist reported first-quarter results in line with guidance and Wall Street's estimates. Adjusted earnings rose 8% year over year to land at $0.52 per diluted share, based on flat revenue of $1.14 billion.

However, CommScope's forward guidance dropped far below Wall Street's current consensus projections and the full-year view was lowered from the expectations that were set three months ago.

Data cables plugged into a busy router.

Image source: Getty Images.

Now what

Full-year revenue guidance was reduced from roughly $5.1 billion to $4.9 billion, dragging non-GAAP earnings down from approximately $2.95 per share to $2.75 per share. Operating cash flows are still seen rising above $600 million, keeping pace with the results from fiscal year 2016.

Management based this gloomy outlook on several negative eddies in its order flows. North American telecoms are showing "more cautious spending patterns," alongside soft demand for indoor networks. The company is also still suffering integration issues from the 2015 acquisition of the broadband network solutions unit of TE Connectivity (TEL -1.94%). That deal unleashed a huge surge in CommScope's sales and cash flows but at the cost of much lower profit margins as the new unit made itself at home with CommScope.

COMM Revenue (TTM) Chart

COMM Revenue (TTM) data by YCharts.

That being said, telecom orders are expected to recover in the second half of 2017. Shareholders are still enjoying a market-beating 22% return over the last 52 weeks despite today's crushing correction, and the stock is trading at historically low price-to-free cash flow ratios.

Investors may want to take advantage of this discount to build a stake in CommScope before the bounce starts in the back half of 2017.

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

CommScope Holding Company, Inc. Stock Quote
CommScope Holding Company, Inc.
COMM
$9.21 (-0.97%) $0.09
TE Connectivity Ltd. Stock Quote
TE Connectivity Ltd.
TEL
$110.36 (-1.94%) $-2.18

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
326%
 
S&P 500 Returns
102%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 10/02/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.