ADTRAN, Inc. (ADTN)’s Looking Like a Bargain

For Adtran, the good news is that it has three prominent carriers in Verizon Communications Inc. (NYSE:VZ), Qwest Corporation (NYSE:CTQ), and AT&T Inc. (NYSE:T), which account for close to 55% of the company’s revenue. It also signals an overreliance. Oracle didn’t care much, even though 80% of Acme Packet’s revenue relies on carriers. But trying to pinpoint when carriers are going to open their wallets is not easy. And I think Adtran’s management understands this.

To that end, the company has shown a strict focus on preserving margins. But the results were mixed. Gross margin dropped by more than 1% sequentially and more than 8% year over year. Even though it didn’t appear as if management fully anticipated the higher costs of the BBA service business, investors should expect some improvements in the coming quarters.

Gains still to come
If Adtran can get more aggressive in its strategic focus, I think this company can impress a name like Cisco enough to consider an acquisition. That’s not to say it’s not attractive today. I think Adtran has some attractive assets that would appeal to Cisco — the Bluesocket wireless LAN product being one example. Plus, Cisco can’t ignore the 100% year over year growth in broadband access business.

In the meantime, it’s interesting that Adtran is beginning to attract analysts’ attention. Stephens recently issued a downgrade citing valuation, yet maintained a price target of $25, which is almost 20% below Friday’s close of $21.14. This sums up the finicky nature of this sector. In other words, Adtran is doing better than expected, and it’s doing so too soon, which is always a good buy signal.

The article Adtran’s Looking Like a Bargain originally appeared on Fool.com and is written by Richard Saintvilus.

Fool contributor Richard Saintvilus has no position in any stocks mentioned. The Motley Fool recommends Acme Packet, Cisco Systems, and F5 Networks. The Motley Fool owns shares of F5 Networks and Oracle.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.