After broad-based recovery, Calix’s (CALX) stock looks a good bet

Like most cloud services providers, Calix, Inc. (NYSE: CALX) has been upgrading its business to take advantage of the mass digital shift the corporate world is witnessing. Last year, the California-based communications cloud platform came out of a prolonged losing spree and remained profitable since then.

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Read management/analysts’ comments on quarterly reports

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The turnaround is attributable to the growing demand for digital solutions, triggered by the ongoing shift in the way businesses operate. The tech firm’s earnings exceeded estimates in each of the past four quarters.

Moderate Buy

If the latest target price is any indication, the stock is unstoppable and is poised to continue the present rally in the remainder of the year. However, Calix is not a risk-free investment as it is prone to the challenges every small-cap company faces in such times of uncertainty. So, experts have taken a cautious stance and assigned it moderate buy rating.

Currently on a mission to transform itself into an All Platform Company, Calix expects the initiative to have a positive impact on the key financial metrics of revenue, gross margin, and operating expense in the long term. It looks like Michael Weening, who was recently promoted to president and chief operating officer, has a very important task at hand.

“We’ve said pretty consistently, as we get to this All Platform model, we’re just getting started. Ours is a land-and-expand model, as you know. And so, part of what we were grappling with in 2020 was how much of this was a pull-forward versus how much of this was an uplift of our model and strategy? And obviously, we’ve now gotten comfortable with it being significantly an uplift,” said Calix’s CEO Carl Russo while addressing analysts at the fourth-quarter earnings conference call.

Strong Customer Growth

In a sign that the ongoing efforts are yielding the desired results, the number of cloud customers increased about 90% in the fourth quarter. Going forward, the focus will be on disciplining the operating cost structure by aligning investments with the management’s long-term strategy. However, the continuing supply chain and logistics disruption could slow down the transformation in the near future, though the situation has improved a lot since early last year.

From Calix’ fourth-quarter 2020 earnings conference call:

“We’ve seen freight costs go up across the board. Whether it’s boats, airs, it doesn’t matter, the rates are going up. The component lead times are pushing out. And just most recently, we’re starting to get price increases on our components. So it’s going to be a challenging year. And so, we’re going to do our best to work through that.”

Record Revenues

In the final three months of 2020, adjusted earnings came in at $0.45 per share, which was above the market’s projection. Reported profit was $24.1 million or $0.37 per share, sharply higher than $0.5 million or $0.01 per share recorded in the prior-year period. The improvement reflects a 41% growth in revenues to a record high of $170 million.

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For most firms cloud is more than a digital transformation engine

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Shares of Calix have been on an upward spiral for nearly a year, all along setting new records. The stock climbed to a new high in January, before retreating sharply towards the end of the month. In the past twelve months, the value nearly tripled.