Why Merrill Lynch Likes 3 Telecom Equipment Stocks

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One analyst is scrutinizing a few companies in the telecom field. As this industry continues to move and grow, Merrill Lynch is making the call early before any of these companies really takes off. The three companies that Merrill Lynch is putting under the microscope are Aerohive Networks Inc. (NYSE: HIVE), F5 Networks Inc. (NASDAQ: FFIV) and Gigamon Inc. (NYSE: GIMO).

24/7 Wall St. has included recent movements by each stock, as well as the range and consensus price target.

Aerohive Networks

Aerohive Networks had its estimates increased as well as its price objective. The brokerage firm explained in its report:

The reselling agreement with Apple is another opportunity for the company, where Apple could help Aerohive get into college campuses and lower education next year. The stock has traded up 84% from the February lows, in anticipation of the E-rate opportunity, yet the valuation is still below the peer group, and further upside to the stock will likely be driven by upside to Street expectations for 2H15. M&A activity in the space, HP/Aruba and Fortinet/Meru, remains another supporting driver for one of the only pure plays remaining in the space. Overall, Aerohive’s valuation remains attractive, trading at ~1.4x our FY16 EV/Sales. We are increasing our EPS estimates for 2015/2016 from -64c/-9c to -59c/-5c.

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As a result, the brokerage firm maintains its Buy rating for Aerohive Networks with a price objective of $8, up from $7. Despite this solid rating, the company does face some risks:

  • The investment in wireless LAN can be discretionary and therefore lumpy over time.
  • The enterprise wireless LAN market is highly competitive and faces the risk of commoditization.
  • Larger competitors, like Aruba and Cisco, have started offering controller-less products and cloud management offerings.
  • Aerohive recently began selling new offerings, such as its new access switch, to compete with a variety of incumbent vendors’ offerings, which adds execution risks.

Shares of Aerohive Networks were up 0.6% at $7.15 on Friday. The stock has a consensus analyst price target of $6.97 and a 52-week trading range of $3.43 to $10.34.