CommScope Holding Company, Inc. has embarked on a cost-cutting drive. The provider of connectivity solutions for communications networks is spinning off its Home Networks and other businesses as it seeks to reduce operating costs.
The Home Networks business spin-off is part of CommScope’s (COMM) strategy that focuses on optimizing the business portfolio, enhancing market growth, and control costs. The separation is to be carried out through a tax-free spin-off resulting in forming a new independent public company.
The fact that the Home Networks unit boasts distinct strategy and growth characteristics necessitated the spin-off push. Likewise, returns on invested capital in the unit are not aligned with the rest of CommScope’s portfolio.
CommScope shares have increased by 21% in 2021 after plummeting in 2020. (See CommScope Holding stock analysis on TipRanks).
“We believe that Home Networks will be better positioned to deliver superior home and consumer-oriented products as an independent company,” said Chuck Treadway CommScope’s CEO. The spin-off should also allow CommScope to focus on innovation. Management also intends to pursue strategic market opportunities to accelerate growth and unlock greater value for customers.
According to Rosenblatt Securities’ analyst Ryan Koontz, the spin-off should result in a much more attractive investor view of CommScope’s remaining business.
“We slightly increase our CY21 / CY22 COMM revenue estimates (+1.8% / +1.4%), just above consensus, and despite COMM stock trading up +4% intraday in response to the announced plan, we view the stock as undervalued in light of improved clarity from the new management team,” the analyst stated in a research note.
Koontz has since upgraded CommScope to a Buy with a share price target of $21, implying a 28% upside potential from current levels.
CommScope has a Hold consensus rating based on 6 Buys and 2 Holds. The average analyst price target on the stock is $18.57, implying 13.5% upside potential to current levels.
The TipRanks’ Smart Score rating system signals a neutral performance on CommScope based on a score of 6 out of 10.
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