Sonus Networks, Inc. (SONS) — SONS stock soared more than 15% in one day last week following the company’s better-than-expected first-quarter earnings report. The provider of networked solutions for communications service providers and enterprises delivered adjusted earnings of 3 cents per share compared to estimates for a loss of 2 cents per share. Revenue of $59.2 million was up 15% from a year ago and also above expectations.
Following the report, S&P Capital IQ Equity Research maintained its “Hold” recommendation on SONS stock but upped its 12-month price target by $2 to $9. Its analysts also significantly increased their EPS estimates for 2016 and 2017, up 29% to 31 cents and up 25% to 40 cents, respectively.
Capital IQ expects growth in new products to result in a sales rebound this year following a 16% drop in 2015. Its analysts call for a 5.3% increase in revenue this year and look for 6% growth next year. They project earnings will turn positive this year, as well, coming in at 31 cents in 2016 and 40 cents in 2017.
Turning to the chart, SONS stock bottomed in February with a high-volume reversal gap following a decline from a triple-top above $20 in the second half of 2014.
The first indication of new accumulation came in late October when my proprietary Collins-Bollinger Reversal (CBR) system flashed a buy signal on higher-than-average volume. Then, following the earnings report on April 27, SONS stock executed a breakaway gap, again accompanied by big volume.
It is apparent that shares are under accumulation, which almost always results in higher prices. Wednesday’s continuing market sell-off produced an unchanged day for SONS stock and provides an opportunity to purchase shares under $8.40 for a trade to about $9.50. If successful, this trade will result in a gain of 13%.
