With the Communication and Networking sector set to hit its stride, driven by the growing demand for seamless connectivity, swift data transfer, and favorable government investments, it seems wise to invest in robust tech stocks Extreme Networks, Inc. (EXTR), Gilat Satellite Networks Ltd. (GILT) and PCTEL, Inc. (PCTI) that are poised to harness the sector's expansive prospects.
Let's explore this in detail.
Since the beginning of the pandemic, people around the world have been shifting their work styles and lifestyles to integrate more seamlessly within online and virtual environments. With remote work and virtual interactions becoming widespread, robust communication and networking infrastructure has become indispensable.
The growing need for seamless connectivity and faster data transfer is driving the demand for advanced communication and networking technologies. The market is also being propelled by the growth of emerging technologies such as the Internet of Things and 5G networks which are accelerating innovation and enabling extensive connectivity.
Last month, the Biden Administration launched the Public Wireless Supply Chain Innovation Fund, investing $1.50 billion in open and interoperable network development. The funding aims to spearhead the deployment of open and interoperable 5G radio access networks, driving technological advancement in the United States.
Additionally, Technavio reports that the industrial communication market is estimated to grow at a CAGR of 10.9%, reaching $73.71 billion by 2027. On top of it, according to Contrive Datum Insights, the global networking service market is expected to rise at a CAGR of 32.9% to reach $64.91 billion by 2030.
Moreover, Gartner forecasts the worldwide spending on communication services this year to stand at $1.48 trillion, a 3.9% rise from the previous year. In this context, tech stocks EXTR, GILT, and PCTI in the communication and networking field could make great buys as they are well-positioned to leverage the sector’s growth potential.
Now, let us delve into the fundamentals of the featured stocks.
Extreme Networks, Inc. (EXTR)
EXTR delivers comprehensive networking solutions to enterprise, data center, and service provider clients. Its offerings include networking software, hardware and services, and maintenance contracts. The company is focused on providing an integrated end-to-end solution that spans from the IoT edge to the cloud.
On May 10, EXTR announced that Living Tomorrow Innovation Campus, an experimental lab near Brussels, Belgium, had chosen EXTR as its network connectivity partner. EXTR would collaborate with customers, partners, and government agencies to promote and design groundbreaking products projected to achieve widespread adoption by 2030.
This strategic alliance empowers EXTR to actively drive innovation, establish a strong market position, and seize opportunities in the next decade.
Moreover, on May 9, the company unveiled ExtremeCloud™ Edge, the industry's pioneering networking cloud continuum. This groundbreaking solution offers customers increased choice and flexibility in running networking applications, such as management, analytics, and AI, from any location.
The launch could allow EXTR to gain a competitive edge, attract more customers, and boost its revenue stream through enhanced choice, flexibility, and cost reduction.
During the third quarter of fiscal 2023 that ended March 31, EXTR’s non-GAAP gross profit grew 18.6% year-over-year to $196.40 million. Its non-GAAP operating income rose 45.9% from the year-ago value to $52.04 million.
Additionally, the company’s non-GAAP net income increased 41.7% from the prior year’s period to $38.85 million, while non-GAAP EPS came in at $0.29, up 38.1% year-over-year.
The consensus revenue estimate of $1.29 billion for the fiscal year ending June 2023 reflects a 16.1% year-over-year improvement. Likewise, the consensus EPS estimate of $1.07 for the current year indicates a 39.4% rise year-over-year. Moreover, the company surpassed the consensus revenue and EPS estimates in all four trailing quarters, which is impressive.
The stock has gained 78.3% over the past year to close the last trading session at $17.76.
EXTR’s robust fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, equating to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
EXTR has an A grade for Growth and Quality. It is ranked #2 in the 51-stock Technology - Communication/Networking industry.
In addition to the POWR Ratings I’ve just highlighted, you can see EXTR’s ratings for Value, Momentum, Sentiment, and Stability here.
Gilat Satellite Networks Ltd. (GILT)
Headquartered in Petah Tikva, Israel, GILT offers satellite-based broadband communications. Its segments include Satellite Networks; Integrated Solutions; and Network Infrastructure and Services. Its equipment is utilized by satellite operators, telecom operators, government and defense organizations, and large corporations.
On April 24, GILT announced that Intelsat is strengthening its strategic partnership and expanding its In-Flight Connectivity (IFC) and cellular backhaul capabilities with multimillion-dollar orders for GILT's multi-service platforms and terminals. Intelsat provides secure, satellite-based communications to government, NGO, and commercial customers.
By offering increased capacity to Intelsat in North America, Latin America, Africa, and Europe, GILT can strengthen its market presence. Moreover, supporting Intelsat's expansion enables GILT to extend its coverage with Mobile Network Operators (MNOs), reinforcing its position in the satellite-based cellular backhauling market.
In addition, on March 9, GILT announced its definitive agreement to acquire DataPath, Inc., as a vital element of the company's Defense growth strategy. DPI, a communications market leader for the US DoD Military and Government sectors, is expected to bolster GILT's annual revenues in the Defense sector by approximately $50 Million post-acquisition.
For the fiscal first quarter that ended March 31, 2023, GILT’s non-GAAP gross profit grew 50.4% year-over-year to $24.76 million. Its non-GAAP operating income stood at $5.28 million, compared to a loss of $266 million in the previous year’s quarter.
Additionally, the company’s non-GAAP net income and EPS came in at $3.85 million and $0.07, compared to a loss and loss per share of $1.78 million and $0.03 in the prior year’s period.
Analysts expect GILT’s revenue to increase 17.1% year-over-year to $64.96 million for the fiscal second quarter ending June 2023. The company’s EPS for the same quarter is expected to grow 100% from the prior-year period to $0.02. Shares of GILT have gained 17% over the past month to close the last trading session at $5.58.
GILT’s positive outlook is apparent in its POWR Ratings. The stock has an overall rating of B, equating to Buy in our proprietary rating system.
GILT has an A grade for Growth and a B for Value and Sentiment. It has ranked #4 within the same industry.
Click here to access additional GILT ratings for Momentum, Stability, and Quality.
PCTEL, Inc. (PCTI)
PCTI provides wireless technology, including purpose-built Industrial IoT devices, antenna systems, and test and measurement solutions. It also offers Radio Frequency (RF) test & measurement products that improve the performance of wireless networks.
On March 27, PCTI revolutionized P25 public safety radio networks with its innovative testing solution. The company’s groundbreaking system introduced the industry’s first automated uplink drive and walk testing. This solution enhances critical communications coverage for public safety and emergency response teams such as police, fire, and EMS.
The innovative system could attract more customers and generate revenue through sales, licensing, and ongoing support services, boosting the company's profitability and market position.
Moreover, on February 7, the company introduced the VerStack antenna platform, designed for intelligent rail communications and IIoT applications. By offering advanced 5G and GNSS vertically stacked antennas, PCTL could gain a competitive advantage in the rail market.
The platform's ability to enable secure and reliable communication exchanges, detect safety-critical conditions, provide early warnings, and facilitate proactive maintenance could also enhance the company’s reputation as a trusted provider of intelligent rail communication solutions.
During the fiscal first quarter that ended March 31, 2023, PCTI’s non-GAAP operating income rose 602.2% year-over-year to $2.24 million. Its adjusted EBITDA grew 153.5% from the year-ago value to $2.79 million.
Moreover, the company’s non-GAAP net income increased 603.9% from the prior year’s quarter to $2.14 million, and non-GAAP EPS stood at $0.12, indicating a 500% year-over-year rise.
The consensus revenue estimate of $102.10 million for the fiscal year ending December 2024 reflects an 11.9% year-over-year improvement. The consensus EPS estimate of $0.47 for the same year indicates a 38.2% rise year-over-year. Also, the company surpassed the consensus EPS estimates in all four trailing quarters.
The stock has gained 13.1% year-to-date to close the last trading session at $4.85.
PCTI’s strong fundamentals are apparent in its POWR Ratings. The stock has an overall rating of A, translating to a Strong Buy in our proprietary rating system.
PCTI has an A grade for Value and a B for Sentiment and Quality. It has topped the Technology - Communication/Networking industry.
Click here to access additional PCTI ratings (Growth, Stability, and Momentum).
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EXTR shares were trading at $18.56 per share on Thursday morning, up $0.80 (+4.50%). Year-to-date, EXTR has gained 1.37%, versus a 9.67% rise in the benchmark S&P 500 index during the same period.
About the Author: Aanchal Sugandh
Aanchal's passion for financial markets drives her work as an investment analyst and journalist. She earned her bachelor's degree in finance and is pursuing the CFA program. She is proficient at assessing the long-term prospects of stocks with her fundamental analysis skills. Her goal is to help investors build portfolios with sustainable returns.
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