Aviat Networks, Inc. (AVNW:BUY) Telecom equipment company expected to return to profitability on strong demand for microwave transmission products in emerging markets.

29-APR-14- Aviat Networks, Inc. (AVNW:BUY) Telecom equipment company expected to return to profitability on strong demand for microwave transmission products in emerging markets. Growth expectations reset, compelling valuation and strong cash position. Initiating coverage with a BUY rating and $2.80 price target.

INVESTMENT SUMMARY

4G LTE spending in emerging markets is still in its early stages, offering a significant opportunity for Aviat over the next 2-3 years.
We view Aviat as having the right technology offerings to benefit from an increasing preference for microwave-based backhaul.
We also believe Aviat’s restructuring efforts should result in significant operating leverage, which will lead to sharply improved profitability.
Aviat’s growth expectations have been reset and the stock has capitulated; the Company is now a compelling value play given its attractive valuation and strong cash levels.
We initiate coverage of Aviat with a BUY rating and a target price of $2.80.

RISKS

US business with Verizon could decline at a faster rate if capacity enhancement related deployments are de-prioritized.
MTN Group, Aviat’s largest customer, may further lower their order rate.
Competition from Alcatel-Lucent and Ericsson in small cell and microwave backhaul.