Rosenblatt has reiterated its Buy rating on Calix shares (NYSE: NYSE:CALX), maintaining a price target of $45.00.
The firm anticipates that Calix's upcoming third-quarter shareholder letter, scheduled for release on October 28, and the subsequent analyst call on the morning of October 29, will reveal financial results and guidance for the fourth quarter that align with expectations.
These include a sequential revenue growth of 1% to 2% per quarter and a slight increase in both gross and operating margins.
The reaffirmation of the Buy rating is based on Calix's development of what is seen as the industry's most compelling, high-margin, software-centric business model. Despite a projection of moderate fourth-quarter growth compared to certain peers in the Telecom Equipment sector, Calix is considered a strong long-term investment.
The company's revenues are believed to have reached their lowest point in the second quarter of 2024, with customer and channel inventories now normalizing.
Calix's appeal is further bolstered by the Fiber Broadband Access market's multi-year growth trajectory. The company's products are designed to help Broadband Service Providers (BSPs) compete effectively for subscribers and experiences. Record gross margins of 55.1% were reported in the second quarter of 2024, with a slight improvement expected in the third quarter.
Calix is also projected to increase gross margins by 100 to 200 basis points in 2024 and 2025, while appliance sales are low, and by a smaller margin in 2026 when appliance sales are anticipated to rebound, driven by the Broadband Equity, Access, and Deployment (BEAD) program.
In the second quarter of 2024, Calix secured its largest Platform and Managed Services contract to date through a renewal with an existing customer, which contributed to a 25% year-over-year and 9% quarter-over-quarter acceleration in Remaining Performance Obligations (RPOs) growth. An even larger record deal was signed in early third quarter of 2024, also a contract renewal, which is expected to be reflected in the third-quarter RPO figures.
InvestingPro Insights
To complement Rosenblatt's analysis, recent data from InvestingPro provides additional context for Calix's financial position. Despite the optimistic outlook presented in the article, it's worth noting that Calix's revenue growth has been negative, with a 3.92% decline over the last twelve months as of Q2 2024. This aligns with the InvestingPro Tip indicating that analysts anticipate a sales decline in the current year.
However, Calix maintains a strong balance sheet, with InvestingPro highlighting that the company holds more cash than debt. This financial stability could support Calix's long-term growth strategies, particularly as the Fiber Broadband Access market continues to expand.
The company's valuation metrics suggest a premium pricing, with a high P/E ratio of 1005.04 and a Price to Book ratio of 3.33. These figures reflect the market's expectations for future growth, as mentioned in the article regarding the multi-year growth trajectory of the Fiber Broadband Access market.
For investors seeking a more comprehensive analysis, InvestingPro offers 11 additional tips for Calix, providing a deeper understanding of the company's financial health and market position.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.