A significant transformation has occurred in the communication and network industry in recent years with the emergence of new technologies such as 5G, the Internet of Things (IoT), and cloud computing. These advancements have created new opportunities for companies to innovate and provide new services that meet the evolving needs of consumers and businesses.
Given this backdrop, it would be wise to scoop up the shares of Cisco Systems, Inc. (CSCO), Extreme Networks, Inc. (EXTR), and Ceragon Networks Ltd. (CRNT), which look poised to capitalize on the growth of 5G technology and deliver significant returns.
As inflationary pressures, supply chain issues, and other global events continue to cause uncertainty, consumers and businesses will likely seek ways to be more cost-effective, competitive, and profitable in this rapidly evolving tech landscape.
Despite facing significant challenges such as cybersecurity threats, regulatory changes, and the need for infrastructure upgrades, the communication and network industry remains a crucial driver of economic growth and innovation.
Revenue in the global communication services market is expected to show a CAGR of about 2%, resulting in a market volume of $1.58 trillion by 2028. In 2023, the global revenue is expected to reach $1.43 trillion, with most revenue projected to be generated in the United States, amounting to $332.40 billion.
According to Deloitte’s Global Technology, Media, & Telecommunications Predictions report, advanced technological trends, such as Artificial Intelligence (AI) and its applications to produce chips, growth in broadband satellites, and rising streaming prominence, are expected to shape the communication industry’s future.
Furthermore, the firm expects the number of mobile network operators investing in 5G stand-alone networks to double from more than 100 operators in 2022 to at least 200 by the end of 2023. The global 5G services market size is estimated to reach $1.67 trillion by 2030, growing at a CAGR of 52%.
Putting money into emerging trends that shape the industry’s long-term growth prospects could be an opportunity to potentially reap large returns, thanks to the power of innovation.
Therefore, investors could look into some breakout stocks such as CSCO, EXTR, and CRNT that look well-positioned to capitalize on the communication industry’s bright prospects.
Cisco Systems, Inc. (CSCO)
CSCO is engaged in designing, manufacturing, and selling Internet Protocol-based networking and other products related to the communications and information technology industry. The company offers wireless products, routed optical networking, 5G, silicon, and optics solutions, etc.
On April 24, CSCO introduced a new solution, Cisco Extended Detection and Response (XDR), and released advanced features for Duo MFA to quickly detect advanced cyber threats and automate response. This move toward boosting cybersecurity solutions should help organizations better protect the integrity of their entire IT ecosystem and add to the company’s revenue stream.
On February 27, CSCO launched Meraki 5G Gateways with T-Mobile to deliver simple and scalable business internet. Thanks to this solution, businesses of all sizes could scale 5G business internet and transform their customer experiences using simplified, scalable, and reliable network-managed services powered by T-Mobile's 5G network and the cloud-first CSCO Meraki platform.
CSCO’s total revenue increased 6.9% year-over-year to $13.59 billion in the second quarter that ended January 28, 2023. The company’s gross margin rose 4.7% from the year-ago value to $8.43 billion, while its non-GAAP net income increased 2.6% from the prior-year quarter to $3.64 billion. Also, its non-GAAP EPS stood at $0.88 per share, up 4.8% year-over-year.
In addition, its cash and cash equivalent came in at $9.01 billion, representing a 27.3% increase, compared to $7.08 billion for the period that ended July 30, 2022.
Streets expect CSCO’s revenue and EPS for the third quarter (ended April 29, 2023) to increase 11.9% and 11.3% year-over-year to $14.36 billion and $0.97, respectively. Moreover, it surpassed the EPS estimates in each of its trailing four quarters, which is promising.
Over the past six months, the stock has gained 5.8% to close the last trading session at $46.47.
CSCO’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has an A grade for Quality and a B for Stability. In the 51-stock Technology - Communication/Networking industry, it is ranked #5. To see additional POWR Ratings for CSCO for Growth, Value, Momentum, and Sentiment, click here.
Extreme Networks, Inc. (EXTR)
EXTR provides software-driven networking solutions worldwide. It designs, develops, and manufactures wired and wireless network infrastructure equipment; and develops software for network management, policy, analytics, security, and access controls.
On May 9, the company introduced ExtremeCloud Edge, the industry’s first networking cloud continuum, delivering more choice and flexibility to customers while running networking applications, including management, analytics, and AI. ExtremeCloud Edge eliminates cloud sovereignty concerns and dramatically boosts the one-network experience.
This new launch reflects EXTR’s continued innovation in enterprise networking and should witness a robust market demand.
In the third quarter that ended March 31, 2023, EXTR’s total net revenue increased 16.5% year-over-year to $332.51 million. Its non-GAAP operating income grew 45.9% from the year-ago value to $52.04 million. The company’s non-GAAP net income amounted to $38.84 million and $0.29 per share, representing an increase of 41.6% and 38.1% from the prior-year quarter, respectively.
The consensus EPS estimate of $0.31 for the fourth quarter (ending June 2023) represents a 106.7% improvement year-over-year. The consensus revenue estimate of $343.37 million for the current quarter represents a 23.4% increase from the same period last year. The company has an excellent earnings surprise history, as it surpassed the consensus EPS estimates in each of the trailing four quarters.
The stock has gained 76.9% over the past year to close the last trading session at $16.45.
It’s no surprise that EXTR has an overall rating of A, which equates to a Strong Buy in our proprietary rating system. It also has an A grade for Growth and Quality. Within the same industry, it is ranked #2 of 51 stocks.
In addition to the POWR Ratings we stated above, we also have EXTR’s ratings for Value, Momentum, Stability, and Sentiment. Get all EXTR ratings here.
Ceragon Networks Ltd. (CRNT)
Headquartered in Rosh HaAyin, Israel, CRNT provides wireless backhaul and fronthaul solutions that enable cellular operators and other wireless service providers. Its offerings include network management systems, network and radio planning, site survey, solutions development, installation, network auditing and optimization, maintenance, training, and other services.
On March 28, CRNT announced that since the beginning of 2023, it had received follow-on orders of $29 million from Tier 1 Operators in India for deployment in 2023. The orders include hardware and services focused on upgrading existing network capabilities to 5G, expanding capacity, improving rural connectivity, and providing customers with reliable, uninterrupted high-speed experiences.
This reflects the company’s vast market reach and strong demand for its services over its peers. Commenting on this, Doron Arazi, CRNT’s CEO, said, “The strength of our product portfolio, our high standard services, and our vast knowledge in the wireless transport domain as a global vendor, have been key in winning this trust.”
On February 21, CRNT launched an AI-based Intelligence and Management Software Suite designed to improve the management and efficiency of multi-vendor wireless transport networks. CRNT Insight’s centralized management suite includes advanced tools that aid customers in increasing operational efficiency, improving network performance, and speeding up troubleshooting.
During the fiscal first quarter (ended March 31, 2023), CRNT’s revenue increased 18.6% year-over-year to $83.41 million, while its gross profit grew 45.7% from the year-ago value to $28.36 million in the same period.
Non-GAAP net income came in at $3.63 million and $0.04 per share, compared to a non-GAAP net loss of $1.85 million and $0.02 per share, respectively, in the prior-year quarter.
In addition, its cash and cash equivalent stood at $26.42 million, representing a 5.9% increase year-over-year versus $24.96 million for the same period last year (ended March 31, 2022).
Analysts expect CRNT’s revenue to increase 11% year-over-year to $78.45 million for the second quarter ending June 2023, while its EPS is expected to be $0.03 in the same period. Its EPS is expected to increase by 15% per annum in the next five years.
CRNT’s shares have gained 5.4% over the past month to close the last trading session at $1.75.
CRNT’S solid prospects are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It also has an A grade for Growth, Value, and Sentiment and a B for Stability. Out of 51 stocks in the same industry, it is ranked #4. Click here to see the other ratings of CRNT for Momentum and Quality.
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CSCO shares were trading at $46.26 per share on Wednesday afternoon, down $0.21 (-0.45%). Year-to-date, CSCO has declined -1.39%, versus a 7.40% rise in the benchmark S&P 500 index during the same period.
About the Author: Shweta Kumari
Shweta's profound interest in financial research and quantitative analysis led her to pursue a career as an investment analyst. She uses her knowledge to help retail investors make educated investment decisions.
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