Why CommScope Holding Company Inc. Fell Today

By Anders Bylund Markets Fool.com

What happened

Continue Reading Below

Shares of CommScope Holding Company (NASDAQ: COMM) fell as much as 19.1% in early trading on Thursday. After the initial panic, which was triggered by CommScope's first-quarter earnings report, the stock recovered slightly to settle down near a 15% drop from Wednesday's closing prices.

So what

The network design and installation specialist reported first-quarter results in line with guidance and Wall Street's estimates. Adjusted earnings rose 8% year over year to land at $0.52 per diluted share, based on flat revenue of $1.14 billion.

However, CommScope's forward guidance dropped far below Wall Street's current consensus projections and the full-year view was lowered from the expectations that were set three months ago.

Image source: Getty Images.

Continue Reading Below

Now what

Full-year revenue guidance was reduced from roughly $5.1 billion to $4.9 billion, dragging non-GAAP earnings down from approximately $2.95 per share to $2.75 per share. Operating cash flows are still seen rising above $600 million, keeping pace with the results from fiscal year 2016.

Management based this gloomy outlook on several negative eddies in its order flows. North American telecoms are showing "more cautious spending patterns," alongside soft demand for indoor networks. The company is also still suffering integration issues from the 2015 acquisition of the broadband network solutions unit of TE Connectivity (NYSE: TEL). That deal unleashed a huge surge in CommScope's sales and cash flows but at the cost of much lower profit margins as the new unit made itself at home with CommScope.

COMM Revenue (TTM) data by YCharts.

That being said, telecom orders are expected to recover in the second half of 2017. Shareholders are still enjoying a market-beating 22% return over the last 52 weeks despite today's crushing correction, and the stock is trading at historically low price-to-free cash flow ratios.

Investors may want to take advantage of this discount to build a stake in CommScope before the bounce starts in the back half of 2017.

10 stocks we like better than CommScope Holding
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and CommScope Holding wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 1, 2017

Anders Bylund has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.