Arris Group Upside Limited

Aug 21, 2008 (Zacks Investment Research via COMTEX) -- ARRS | Quote | Chart | News | PowerRating -- Arris Group, Inc. (ARRS), a leading provider of communication infrastructure for broadband networks, announced mixed financial results for second quarter 2008. The company's overall revenue growth was limited as a result of softening sales to Comcast (CMCSA) and Time Warner Cable (TWC). Net income, however, was above our estimates due to effective expense control and the introduction of higher margin products, following its C-COR acquisition. Arris maintains a solid order backlog, a favorable book-to-bill ratio, and strong free cash flow. We also believe the deployment of switch-digital video will ramp up in early 2009 to support Arris' growth projections. On the other hand, it is our opinion that the company has a limited range of product offerings as its EMTA line of solutions may have reached a demand plateau. This, together with ongoing global economic uncertainties, may hinder valuation improvements over the near-term. We maintain our Hold recommendation. Arris is currently trading at 13.7x our estimated earnings for fiscal 2008. This represents a substantial discount to both the S&P 500 and the peer group averages. With respect to other selected valuation metrics, the stock is also trading below its peer average. We set a six-month target price of $11 based on an approximate P/E multiple of 16x our fiscal 2008 earnings estimate, a discount to the peers due to limited product offerings and a concentrated customer base. Nalak Das contributed to the report. Read the full analyst report on ARRS

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