Wells Fargo Projects Sustained Growth For British Telecom Supplier Arris

Wells Fargo initiated coverage of ARRIS International plc ARRS with above-consensus estimates for 2018, 2019 and 2020.

The Analyst

Wells Fargo's Aaron Rakers initiated Arris with an Outperform rating and $32 price target.

The Thesis

The British telecom equipment company is well-positioned to capitalize on ongoing upgrade investments in DOCSIS 3.1 technology, Rakers said in a Thursday note. (See the analyst's track record here.) 

Arris' weak first-quarter results should represent a bottom, the analyst said. Rakers said he's positive on the company's enterprise networking segment and sees it as a potential upside driver.

Wells Fargo forecast revenue for the enterprise networking segment to fall at the high end of Arris' $650 million-$700 million guidance range, and projects 13-percent CAGR from 2017-2021 and a sustained 60-percent-plus gross margin. 

Rakers named three drivers for Arris' enterprise networking segment:

• The vertical expansion,  ramping and leveraging of the the Dell EMC original equipment manufacturer relationship.
• The 802.11ax WLAN and campus switching upgrade cycle.
• The U.S. Citizens Broadband Radio Services 3.5 GHz shared/dynamically licensed free spectrum represents a significant small cell opportunity.

The Price Action

Arris shares were up 1.77 percent at $26.44 at the close Thursday. 

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