"Harmonic (NASDAQ: HLIT) is the largest pure play in the critical video head-end infrastructure market," says tech guru Marcie Wilmot.
In Paul William's Next Inning advisory service, she looks at his top pick for 2009, with "a solid balance sheet, excellent prospects for continued profitability and an attractive valuation." Here's her review.
"Harmonic leads the world in HD encoding technology as well as a number of software-centric head-end technologies.
"It is also leading the world in the emerging Universal EDGE QAM markets with a new product that provides not only traditional EDGE QAM functions, but also adds Modular CMTS (M-CMTS) for DOCSIS 3.0 and SDV (Switched Digital Video).
"Following its leadership change in late 2005, HLIT has produced a record nine straight profitable quarters and boosted its gross profit margin from 35% in Q4 2005 to over 50% in its last reported quarter.
"While no sector will totally escape the impacts of our global economic slow down, it appears at this juncture that any slowing in mature markets will likely be offset by continued expansion of satellite, cable and IPTV services in emerging markets.
"With a solid balance sheet sporting $3.10 per outstanding share in net cash, net tangible asset value of $3.55 per share and excellent prospects for continued profitability, HLIT -- currently trading at $5.10 per share -- is clearly trading at an attractive valuation with the growth potential to provide investors with a significant upside in 2009.
"In addition, Harmonic has announced the acquisition of Scipus Video Networks, which si see as a good deal for HLIT shareholders and potentially a brilliant strategic move for HLIT.
"Roughly 75% of SCOP revenue is derived from product categories and/or markets outside HLIT's current scope of operation. From a product perspective, the largest of these is IRD (Integrated Receiver/Decoder) technology that is used extensively in the broadcast, contribution and distribution markets.
"Whether we view this from the perspective of return on invested capital, which clearly appears to provide a yield greater than 20%, or from the perspective of what I think are reasonably modeled returns, it appears to me this is a very attractive acquisition."
