Investment Idea: Viavi Solutions Inc. (VIAV)
Viavi Solutions Inc. (VIAV) - Investment Idea
Current Price: $18.11 Market Cap: $4.0B
1. Executive Summary
Viavi Solutions is a leading provider of network test and assurance solutions benefiting from the ongoing investments in 5G, fiber optic deployments, and cloud infrastructure. We believe Viavi is undervalued, as its diverse segment exposure and mission-critical product offerings provide a defensive posture with attractive growth potential given the secular trends in the communications equipment industry.
2. Investment Thesis (Bull Case)
- 5G and Fiber Tailwind: Viavi's Network Enablement (NE) segment, which represents a significant portion of revenue, stands to benefit significantly from the continued global rollout of 5G networks and expansion of fiber optic infrastructure. The company provides essential testing and certification solutions required to build, optimize, and maintain these networks, making it a direct beneficiary of increased capital expenditures by communication service providers.
- Service Enablement Growth: The Service Enablement (SE) segment offers a compelling opportunity to capitalize on the increasing complexity of network environments. Viavi's embedded systems and enterprise performance management solutions provide critical visibility into network, service, and application data, enabling customers to optimize performance, reduce downtime, and improve the end-user experience. This is particularly relevant for cloud operators and large enterprises where network performance directly impacts business outcomes.
- Optical Security and Performance Products (OSP) Diversification: The OSP segment adds diversification and stability to Viavi's revenue stream. While less cyclical than the NE segment, OSP provides exposure to growth markets, including anti-counterfeiting, automotive, and government applications, bolstering the company’s overall revenue and profitability.
- High Recurring Revenue Streams: Viavi generates a significant portion of its revenue through services, software updates, and long-term support contracts, providing a stable and predictable revenue base. This recurring revenue model enhances the company's earnings visibility and reduces the volatility of its financial performance.