2023-08-02 08:10:58 ET
Cambium Networks ( NASDAQ: CMBM ) stock fell ~35% premarket on Wednesday after J.P. Morgan Securities downgraded the stock to Underweight from Neutral, and the company cut its outlook, appointed a new CEO and Q2 results missing estimates.
J.P. Morgan analysts noted that they were downgrading Cambium's stock after another hiccup related to getting back to a normalized growth backdrop with the last few years consisting of supply headwind driven growth challenges, followed by demand headwinds for the PMP and PTP product portfolio, and now is running into Enterprise channel headwinds.
The analysts added that current headwinds represent a correction to the higher-than-normal demand which Cambium saw in 2022 in its Wi-Fi products when distributors over-ordered to offset greater supply headwinds, and now is experiencing inventory digestion by the channel as supply from rivals have improved.
With the current visibility the company has it leading it to predict that Enterprise Wi-Fi revenue will return to a normal level by mid-2024, although still anticipate to be below the $32M to $38M quarterly revenue run-rate which CMBM benefitted from in 2022.
Looking beyond the visibility offered by Cambium currently, the analysts' worries are related to the anticipated ramp in PMP (and PTP) revenue for CMBM in the coming quarters where the challenging macro and pullback in spending from a broader group of service provider customers is adding more headwinds to the demand outlook.
The analysts said that they continue to see Cambium products well positioned in the fixed wireless market from a technology leadership, but the tough macro is anticiipated to impact the demand ramp nevertheless and add more choppiness to an existing track record of inconsistent execution.
In addition, the change in CEO with the current CEO Atul Bhatnagar stepping down immediately provides an opportunity for the CMBM to rethink its revenue and expense drivers, and communicate to investors long-term targets which are realistic for the business.
Cambium named Morgan Kurk, a former senior executive at Honeywell International ( HON ), as its new CEO, president and board member, effective immediately. Bhatnagar would remain on Cambium's board, according to the company.
The analysts think that investor patience with Cambium's stock is going to be limited in the meantime due to a combination of — inconsistent track record; limited scale steering high variability on earnings; low visibility given high reliance on the channel; and reevaluation of strategy and the appropriate drivers of revenue and expenses in the long-term.
The analysts have moved their December 2024 price target to $12, compared to $17 previously.
CMBM -33.57% to $10.80 premarket Aug. 2
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Cambium slumps 35% after J.P. Morgan downgrades; outlook cut, new CEO appointed