Harmonic Stock: Big 2023 EPS Growth Expected (NASDAQ:HLIT)

Tech stocks are off to a hot start in 2023. The Nasdaq 100 fell more than 30% in 2022 but is up 5% so far this month. The Information Technology sector is being driven higher by both the megacap stalwarts and the low-end Cathie Wood-type non-profitable names. One firm with positive earnings and impressive future growth related to key trends in the cable business has earnings on Monday. Are shares a buy ahead of that event? Let’s flip on the ticker and take a look.

The Qs Jump To 4-Month Highs As Tech Leads The 2023 Rally

According to CFRA Research, Harmonic Inc. (NASDAQ:HLIT) provides video delivery software, products, system solutions, and services worldwide. The company operates in two segments, Video and Cable Access. The Video segment sells video processing, production, and playout solutions and services to cable operators, and satellite and telecommunications Pay-TV service providers, as well as to broadcast and media, including streaming media companies.

The California-based $1.5 billion market cap Communications Equipment industry company within the Information Technology sector trades at a high 39.1 trailing 12-month GAAP price-to-earnings ratio and does not pay a dividend, according to The Wall Street Journal. The stock has a slightly elevated 9.3% short interest.

Back on January 9, Jefferies brightened its outlook on Harmonic based on cable market fundamentals – shares surged 9% on the upgrade. Before that in October, the firm reported an EPS beat with strong YoY revenue trends at +23%. The stock has been trendless since then, though.

On valuation, Seeking Alpha rates HLIT as the top quant stock in its 50-member industry. With impressive EPS growth expected in the years ahead, on the order of 105% in terms of its 1-year EBIT climb anticipated, shares have a high A+ ranking. Investors might have to stick around to realize that growth, though, as CFRA shows a Q4 2022 EPS consensus forecast of just $0.15 which would be a modest decrease from $0.16 earned in the same quarter a year ago.

On the plus side, total revenues are seen as rising 2.5% from Q4 2021. I’ll be watching how the firm’s margins verify in the upcoming release as its operating and net profit margins are thin. Still, the firm should benefit from tailwinds in its CableOS service. While the stock’s operating and GAAP P/E ratios are high, a massive 119% diluted EPS growth rate in the year ahead yields a very low PEG ratio.

So, this is a solid growth candidate for your portfolio – so long as the price action agrees. Read on.

Harmonic: Earnings, Revenue Forecasts. Key Profitability Ratios

Looking ahead, corporate event data from Wall Street Horizon show a confirmed Q4 2022 earnings date of Monday, January 30, after the closing bell with a conference call immediately after the numbers are released. You can listen live here. The event calendar is light aside from the earnings date.

Corporate Event Risk Calendar

The Technical Take

In a sea of tech destruction over the last year, HLIT sports a bullish chart. Notice in the graph below that shares are consolidating in a range between about $13 and $16. A move above this range would trigger an upside price target of $19 based on the $3 current range – that would be a new all-time high. What I like here is the stock’s strong volume trends since moving higher in early Q4 last year.

Volume then declined as the stock has traded sideways – indicative of a continuation pattern. So, the presumption is that the stock will eventually break out. What’s concerning, though, is some bearish moves in RSI, but it’s not technically a negative divergence since shares have not made a new high in price. Support is in the $12 to $13 range.

Overall, a long play here with a stop under $12 makes sense with a near-term target of $18.50.

HLIT: A Bullish Consolidating Within A Broad Uptrend

The Bottom Line

If you’re in search of a high-momentum growth stock, Harmonic might be music to your ears. Big earnings growth in the coming year, albeit with not much YoY EPS change seen in Monday’s report next week, a valuation premium is warranted. Keep your eye on a few key price levels on the chart.