ARRIS Group, Inc. (NASDAQ:ARRS) — This communications equipment company provides cable telephony systems and broadband equipment for cable system operators.
In April 2013, it acquired Motorola Home, a TV set-top box business, from Google Inc (NASDAQ:GOOG) for $2.35 billion. The purchase is already yielding results, including a 168% rise in 2013 sales.
On Wednesday, ARRIS Group reported better-than-expected Q4 earnings of $1.29 per share compared with a loss of $0.02 a year ago. However, revenue of $1.3 billion, while up 5.3% year over year, was below Zacks consensus estimate.
Even though the company handily beat bottom-line estimates, S&P Capital IQ reduced its 2015 earnings target by $0.20 to $2.65 per share. It expects EPS to increase 17% to $3.10 in 2016. Its analysts also lowered their price target for ARRS stock to $31 from $35. This is based on a forward P/E of 11.7, which they admit is below the stock’s five-year historic average of 13.1 and also below the industry average of 16.9.
Despite the revenue miss, ARRS stock presents a good trading opportunity. Positive technical features include a strong MACD indicator, high-volume buying and a buy signal from my proprietary internal indicator, the Collins-Bollinger Reversal (CBR), in January.
But I don’t recommend buying ARRS stock at Thursday’s closing price after rallying 4.6% on the day. Shares have support at their 50-day moving average at about $28, and then the 20-day moving average at $27. A double-bottom with the CBR buy is noted at $26.
Buy ARRS stock on a pullback to $26.50-$27 with a trading target of $32-plus, which is the middle of the July gap at $31.05 to $34.05. A stop-loss order should be entered at $25.
