Arris Group (ARRS)
By Timothy Lutts, Chief Analyst, Cabot Stock of the Month
From Cabot Wealth Advisory 9/15/14 Sign up for Cabot Wealth Advisory—it’s free.
The leading indexes remain strong, and growth investors still have plenty of stocks to chase higher. For momentum investors—like those following GoPro (GPRO), which I highlighted at the Cabot Investors Conference back on August 15, these days can be fun.
But—stock valuations are high, and I’m still concerned that the market is building a long-term top.
So for many investors, particularly those with longer time horizons, caution is the watchword. To me, that means looking for value.
And when I look for value, the first place I turn is Cabot Benjamin Graham Value Investor.
Value guru Roy Ward highlighted Arris Group (ARRS) in the latest Special Features issue. Arris is not a household name, yet most of us are customers of the company, indirectly.
That’s because almost everything you watch, whether it’s on a television, tablet or smartphone, goes through Arris’ equipment.
Since buying Google’s Motorola Home business in April 2013 for $2.35 billion, Arris is the king of the industry, the leading supplier of digital video and IP television hardware and software
And it’s selling a lot of gear to companies like Comcast, Verizon, Time Warner and AT&T, as the industry evolves to more and more IP (Internet Protocol) technology.
In the third quarter, sales are expected to grow 30% and earnings 68%. Yet the stock’s current PE is just 13, quite low.
In part that’s because the stock sold off after a disappointing second-quarter earnings report back on August 1.
You can see how the stock bottomed at 29 then, and in the month since, has built a base at that level, as far-sighted investors accumulate stock. Last week it nearly touched 29 again, but on much less volume, and that chart, combined with Roy’s value analysis, tells me the upside is attractive from here.
Lastly, Roy’s Minimum Sell Price for ARRS, which is calculated using a huge number of inputs, is 43. He expects it to get there within a year.
So, you could just buy ARRS here, but even better would be to become one of Roy’s loyal readers. Click here for more information.
By Michael Cintolo, Chief Analyst, Cabot Market Letter and Cabot Top Ten Trader
From Cabot Wealth Advisory 6/5/14 Sign up for Cabot Wealth Advisory—it's free!
On the new leader list, one name I like is Arris Group (ARRS), which was my Top Pick in Cabot Top Ten Trader on May 19 before the stock leapt to new highs. The ruling reason for the company’s strength is that after years of little investment, cable TV operators (including telco firms) are spending big money to expand bandwidth so they can offer various video services, faster Internet speeds and the like. Basically, the fear of over-the-top services like Netflix (which can lead to “cord cutting” and falling subscriber totals) is forcing this upgrade cycle.
Thanks partly to its fish-swallows-whale purchase of Motorola Home last year, Arris is going to be the main beneficiary of this spending. Business is already growing like mad, and the first quarter saw orders mushroom, a great sign for the future. Of course, at some point the party will end, but management believes it’s still in the early innings of this cycle. ARRS was one of the first stocks to power to new highs last week, and I think it’s buyable around here, with a stop in the 28-29 area.
For more information, click here.
By Michael Cintolo, Chief Analyst of Cabot Market Letter and Cabot top Ten Trader
From Cabot Wealth Advisory 4/24/14 Sign up for Cabot Wealth Advisory—it's free!
I’m actually seeing quite a few names that are building early-stage bases and could provide entry points on a push back above their 50-day lines ... which tells me the next few trading sessions will be a good test for growth stocks in general.
One name I’m watching on that front is Arris Group (ARRS), which, thanks to a fish-swallows-whale purchase of Motorola Home from Google (the purchase more than doubled Arris’ size!), is one of the top dogs in supplying set-top boxes and other equipment that allow cable firms to offer next-generation TV services. Here’s a background write-up I did on the company in Cabot Top Ten Trader back in January:
“Broadband hardware maker Arris Enterprises is poised for a major growth surge in 2014 as demand for its products surge thanks to next-generation TV services. The company’s acquisition of Motorola Mobility’s Home business—which more than tripled the company’s size—has allowed Arris to become the leading video client provider (read that as set-top boxes), with more than 500 customers in 70 countries. Since the acquisition, Arris’ revenue has spiked from roughly $350 million in the first quarter of 2013 to more than $1 billion in each of the past two quarters! The company’s most recent coup is a deal with Comcast, the largest cable TV operator in the U.S. Specifically, Comcast is launching Arris’ XG1 gateway for its next-gen TV service. Furthermore, Comcast is deploying Arris’ E6000 Converged Edged Router to enable its converged cable access platform. Looking ahead to 2014, analysts are projecting sales growth of 31% for Arris, with a nationwide push toward IP TV seen providing a significant boost to the company’s bottom line.”
Not much has happened news-wise since then—Arris did report a solid fourth quarter (sales up 249% because of the acquisition, earnings up 93%), and analysts continue to expect solid earnings growth this year (up 26%) and next (up 20%). If you’re wondering, the current P/E is just 16, so it’s still being discovered.
Moreover, the stock just got going from a multi-year consolidation in November of last year. After running from 18 to 31, shares are now in their ninth week of base building, and are approaching their 50-day (blue) line, which is now around 28.
Overall, the market is still questionable, and ARRS is reporting earnings soon (May 6), so I am certainly not pounding the table. But if you’re game, you could consider a small position if ARRS rips above its 50-day line in the days ahead (big volume, decisive move), with a tight stop near 26.
To learn more about 10 additional momentum stocks featured in this week’s Cabot Top Ten Trader risk-free, click here.
Arris Group (ARRS): Leading supplier of digital video and IP TV solutionsBy J. Royden Ward, Chief Analyst, Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory 2/18/14 Sign up for Cabot Wealth Advisory—It's free.
My featured stock today is a telecommunications equipment company that’s winning business from giants like Cisco Systems. I’ve studied the company’s sales and earnings trends. I’ve read about management’s strategies, goals and plans for the future. I’m confident that I could put all my money into this stock, because the outcome is obvious: the stock will be a winner! In fact, I like it so much that I featured it in the January edition of the Cabot Benjamin Graham Special Features Edition, of which I am the chief research analyst.
Arris Group (ARRS) develops and manufactures equipment and software for cable system operators and other broadband service providers which allow their subscribers to receive a full range of voice, video and data services. Arris also supplies infrastructure products to cable system operators used in the construction and maintenance of hybrid fiber-coaxial (HFC) networks.
Arris acquired Google's Motorola Home business in April 2013 for $2.35 billion. The purchase transformed Arris into the leading supplier of digital video and Internet Protocol (IP) television hardware and software solutions used by global cable, telecom, broadcast and satellite providers. Motorola Home will allow Arris to focus on the transformation from set-top box converters to IP in both the home and in business.
The Motorola purchase has not only made a huge difference in Arris’ sales and earnings, but results are noticeably better than expected. Sales almost tripled in 2013 and EPS soared 65%.
The development and sale of exciting new products, such as video gateway platforms and broadband gateway devices, will provide a big boost to sales in 2014. I expect sales to increase another 40% in 2014 and EPS to rise 29% to 2.00. At 18.0 times 2013 EPS and with a PEG ratio of 0.71, the stock price is a bargain because of the company’s exploding growth. I expect the stock to advance to my recommended sell price within one year. Buy ARRS now. More on Cabot Benjamin Graham Value Investor.
|Arris Enterprises (ARRS)
3871 Lakefield Drive
Suwanee, Georgia 30024
|Index Membership: N/A
Industry: Communication Equipment
Full Time Employees: 6,500
6/5/14 Arris Group (ARRS): Beneficiary of cable TV spending
4/24/14 Arris Group (ARRS): A top dog in next-gen TV services
2/18/14 Arris Group (ARRS): Leading supplier of digital video and IP TV solutions