Clarity Needed On Adtran: Hold, Tells Auriga (ADTN, T, VZ)

Auriga has reiterated its Hold rating on Adtran (NASDAQ: ADTN) shares based on AT&T’s (NYSE: T) carrier spending. Verizon (NYSE: VZ) has followed a divergent approach for the same and both AT&T and Verizon represent 10% each of Adtran’s historical revenue.

A part of AT&T’s near-term spending is aimed at strengthening its wireless backhaul network and it is expected that Adtran’s HDSL business will benefit from this move. This information is incrementally positive for Adtran but not enough to recommend buying at current prices.

Auriga has fixed the price target at $19 which is 15x the 2010 estimate of $1.24. The downside risk here is that Adtran’s historical earnings have been unpredictable and it has had sudden earning shortfalls in the past. The new TA-5000 product line is potentially powerful, as earnings and P/E multiples have improved greatly during such product cycles.