Stocks ticked higher in early trading, boosted by solid gains from tech giants Alphabet (GOOG) and Microsoft (MSFT). Quarterly results from key names Ford (F), Meta (META), and Qualcomm (QCOM) are expected after the bell. Meanwhile, investors will be focused on the Federal Reserve, which is set to announce its latest rate decision this afternoon. Markets widely anticipate a 75 basis point increase in the benchmark rate.
“With so many moving parts to consider, we expect markets to remain volatile after the FOMC meeting,” wrote Mark Haefele of UBS Global Wealth Management.
Today we’re focusing on a mighty mid-cap poised to benefit from more than $150 billion in government spending allotted for crucial broadband infrastructure updates planned over the next three years.
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.
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 has continued to show strength despite persisting supply chain disruptions and even increased inventory in the second 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. This strategy has allowed the company to stay nimble amidst supply snags and rising prices without passing the cost along to its customers.
Earlier this week, the company reported Q2 revenue of $202 million, surpassing Wall Street’s expectation of $196 million. Adjusted EPS of 22 cents came in 15% above consensus expectations. Management attributed the robust performance to its supply chain team, which surpassed expectations despite the challenging environment for component sourcing and supply chain logistics.
Calix expects demand to remain strong throughout the year and plans to continue building its reliable reputation. “To be clear, we do not believe the supply chain will normalize at any time in the foreseeable future, and we remain resolute in our focus in this difficult environment,” Calix management said in a letter to shareholders. The company expects to see $211 to $217 million in revenue in the third quarter, where the consensus sees $199 million.
CALX garners a Buy rating from the 8 analysts covering the stock and a median price target of $62.50, representing a 24% increase from where the stock closed Tuesday.
Should you invest in Calix right now?
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And it's not Calix.
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But you have to act now, because a catalyst coming in a few weeks is set to take this company mainstream... And by then, it could be too late.
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