On Monday, Stifel, a financial services firm, updated its outlook on Viavi Solutions (NASDAQ:VIAV), increasing the price target to $12.00 from the previous $10.50. The firm has maintained a Buy rating on the stock. Currently trading at $11.05, VIAV has shown strong momentum with a nearly 49% gain over the past six months.
According to InvestingPro data, two analysts have recently revised their earnings estimates upward for the upcoming period. The adjustment follows VIAVI's recent announcement on Friday of a definitive agreement to acquire Inertial Labs.
The transaction is valued at up to $325 million, with $150 million to be paid at closing and up to $175 million in contingent consideration over the next four years.
The acquisition will be financed through available cash and is anticipated to contribute approximately $50 million to VIAVI's Network (LON:NETW) and Service Enablement (NSE) revenue in 2025. Additionally, the deal is expected to have a positive effect on earnings per share (EPS) within 12 months of closing.
VIAV maintains a healthy financial position with a current ratio of 3.71, indicating strong liquidity, and operates with a moderate debt-to-equity ratio of 0.98. The closing of the transaction is projected for the first calendar quarter of 2025 (C1Q25).
Stifel's analysis suggests that the acquisition's upfront fiscal year 2 price-to-sales (P/S) multiple stands at 3x, with the possibility of additional upside. This multiple represents a premium compared to VIAVI's current valuation of around 2.3x. The contingent consideration is believed to include stipulations related to revenue and earnings growth, which means the multiple is not expected to change significantly during the four-year earn-out period.
The financial firm views the acquisition as attractive, citing the potential for higher margins on a smaller revenue base, as well as the acquisition's key customer relationships that could benefit VIAVI. The strategic move by VIAVI is seen as a positive development for the company's financial outlook and market positioning.
With a gross profit margin of 58.7% and trading near its 52-week high, VIAVI shows promising potential. For deeper insights into VIAVI's valuation and growth prospects, including exclusive financial health scores and detailed analysis, check out the comprehensive research available on InvestingPro.
In other recent news, Viavi Solutions has entered into a definitive agreement to acquire Inertial Labs, a deal valued at $150 million with an additional $175 million in contingent consideration over four years. This transaction aligns with Viavi's strategy to expand its portfolio and market presence in the aerospace, defense, and industrial sectors.
Furthermore, Viavi Solutions has reported a net revenue of $252 million for the fourth quarter of 2024 and announced a restructuring plan aiming for annualized cost savings of approximately $25 million by the end of fiscal 2025.
Analysts at UBS and Rosenblatt have given Viavi Solutions a neutral rating, with Rosenblatt increasing the price target to $10.50 from the previous $8.25. UBS projects that Viavi will return to mid-single digit growth by fiscal year 2026, driven by increased investment spending by Communication Service Providers (CSPs) and a faster pace of network deployments.
In other developments, Viavi Solutions has entered an agreement with Telefónica Hispanoamérica to supply automated network inventory management tools and launched a new Ethernet testing module, the ONE-1600, to support the emerging 1.6Tb/s ecosystem.
At the annual meeting, shareholders approved the board and executive pay, ratifying the appointment of PricewaterhouseCoopers LLP as the company's independent registered public accounting firm for the fiscal year 2025. These are the recent developments that have been shaping Viavi Solutions' outlook and operations.
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