Arris Group Reverts to Neutral - Analyst Blog
April 18 2013 - 9:00AM
Zacks
We downgrade our recommendation on
Arris Group Inc. (ARRS) to Neutral ahead of its
first quarter of fiscal 2013 financial results, which will be
released on Apr 24, after the closing bell.
Why the
Downgrade?
We downgrade Arris based on its
high-level of current valuation. Arris is currently trading at a
significantly higher multiple with respect to several valuation
metrics compared with the S&P 500. The stock price has soared
over 50% over the last year and is currently trading at a 52-week
high end. We believe that Arris is currently fairly valued as this
high level of valuation will restrict above-market gain anytime
soon. Arris currently has a Zacks Rank #3 (Hold).
Risk/Reward Almost
Balanced
Arris is solely dependent on cable
operators for its revenue. Lack of industry diversification may
result in limited business prospects. Potential shifts in industry
dynamics may adversely impact the cable TV service providers. This
is evident from the fact that large telecom carriers in the U.S.
are increasingly expanding their high-speed fiber-based network and
satellite TV providers are also upgrading their networks. Cable
MSOs are gradually losing their basic video customers to low-cost
satellite TV and Internet video service providers.
On the positive side, Arris
recently acquired the cable set top box business of Motorola
Mobility, a subsidiary of Google Inc. (GOOG). This
acquisition will undoubtedly help Arris attain a strong foothold in
the video offerings market. The merged entity will have a global
presence of more than 500 customers in 70 countries. This will
reduce Arris’ dependence on Comcast Corp. (CMCSA)
and Time Warner Cable Inc. (TWC), which together
constitute about half of the company’s total revenue.
ARRIS GROUP INC (ARRS): Free Stock Analysis Report
COMCAST CORP A (CMCSA): Free Stock Analysis Report
GOOGLE INC-CL A (GOOG): Free Stock Analysis Report
TIME WARNER CAB (TWC): Free Stock Analysis Report
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