Stocks ticked higher in early trading and looked to add to yesterday’s gains. The move upward was fueled by growing hope for a resolution to the Russia-Ukraine conflict after remarks from the Russian Deputy Defense Minister, Alexander Fomin, who said that Russia would “drastically reduce military activity near the Ukrainian capital Kyiv. The S&P 500 and the Dow are coming off three straight positive sessions. Will today’s session make a fourth? Only time will tell.
This morning we’re featuring a company positioned to benefit significantly from the more than $150 billion in broadband spending slated for the next three years. The pros on Wall Street see this stock stacking on an impressive 45% this year. Considering the current entry, investors looking to get in on this unique communication services mid-cap might consider now an opportune time to strike up a position.
Communication service cloud and software provider Calix Inc (CALX) seems likely to benefit significantly from the over $150 billion in broadband stimulus spending over the next three years. Calix customers include SCTelcom, Verizon, ALLO Communications, CityFibre, Nex-Tech, Gibson Connect, ITS Fiber, Canadian Fiber Optics, Sogetel, and over 1,400 other communications service providers globally, the majority being in North America.
The company has continued to show strength despite persisting supply chain disruptions and even increased inventory in the fourth quarter to improve responsiveness to its growing customer base. CALX is an asset-light business that outsources much of its manufacturing and warehousing to third parties – a strategy that has allowed the company to stay nimble amidst supply snags and rising prices without passing added costs along to its customers.
Calix’s customer retention was off the chart in 2021, which translates to more predictable income. In 2021 recurring revenue increased 76% year-over-year to $125 million. That number is up from a 23% YOY increase in 2021. Thanks to the company’s subscription-based business model, competitive pricing, and customer satisfaction, that trend seems likely to continue over the next three years at least.
The company sees revenue increasing about 9% YOY in the first quarter of 2022, well in line with its target range of 5 to 10% for annual revenue growth. Compared to the year-ago quarter, cash and investments increased by $70.5 million primarily due to a positive free cash flow of $46.3 million – yet another trend the company expects to continue in the coming years.
CALX garners a Strong Buy rating from the analysts covering it and a median price target of $59.50, representing a 42% increase from where the stock closed Monday.
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