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Harmonic (HLIT) Hits Fresh High: Is There Still Room to Run?

Zacks Equity Research

Shares of Harmonic (HLIT) have been strong performers lately, with the stock up 26.9% over the past month. The stock hit a new 52-week high of $8.1 in the previous session. Harmonic has gained 64.8% since the start of the year compared to the 26.4% move for the Zacks Computer and Technology sector and the 20.2% return for the Zacks Communication - Components industry.

What's Driving the Outperformance?

The stock has a great record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on October 28, 2019, Harmonic reported EPS of $0.25 versus consensus estimate of $0.22 while it beat the consensus revenue estimate by 0.74%.

For the current fiscal year, Harmonic is expected to post earnings of $0.25 per share on $393.78 million in revenues. This represents a 31.58% change in EPS on a -2.42% change in revenues. For the next fiscal year, the company is expected to earn $0.31 per share on $445.95 million in revenues. This represents a year-over-year change of 24% and 13.25%, respectively.

Valuation Metrics

Harmonic may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Harmonic has a Value Score of C. The stock's Growth and Momentum Scores are A and A, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 32.7X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 22.3X versus its peer group's average of 17.4X. Additionally, the stock has a PEG ratio of 3.73. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Harmonic currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Harmonic meets the list of requirements. Thus, it seems as though Harmonic shares could still be poised for more gains ahead.

How Does Harmonic Stack Up to the Competition?

Shares of Harmonic have been rising, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including Communications Systems (JCS), Zayo Group Holdings (ZAYO), and Motorola Solutions (MSI), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

The Zacks Industry Rank is in the top 40% of all the industries we have in our universe, so it looks like there are some nice tailwinds for Harmonic, even beyond its own solid fundamental situation.

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