Harmonic Stock A 'Top Pick' As Analyst Touts A 'Moat' That'll Stand 'Unchallenged'

Needham analyst Ryan Koontz reiterates Harmonic Inc HLIT with a Buy and a $19 price target.
Charter Communications, Inc CHTR announced Monday that it selected Harmonicas as its partner to deploy its CableOS virtual CMTS technology as a core element of its next-generation broadband network.
The analyst has been expecting this win for several quarters and viewed the formal announcement as imminent when Casa Systems, Inc CASA acknowledged its loss at Charter last week.
TSX-listed Vecima also announced a U.S. tier 1 MSO hardware supplier contract, which the analyst believes is with Charter and will be shared with HLIT.
Koontz believes HLIT has the world's only vCMTS software product deployed at scale, including by its crucial customer Comcast Corp CMCSA.
The analyst believes the Charter win could approach the size of Comcast, given that both operators are similar.
HLIT's vCMTS software deal with Comcast was worth ~$150 million, and Koontz thinks Charter could be even more significant given additional DOCSIS 4 and FTTH features included.
The analyst estimates the Charter hardware opportunity at $500 million-$700 million, including its subsidized rural expansions.
Given Charter's aggressive public plans to complete its network upgrades over 2024-2026, Koontz expects HLIT could see initial revenue in 2H23 and a material ramp in 2024.
The analyst sees this software win as highly strategic and sticky, with cable operators unlikely to add second vendors for their software core and unlikely to revisit a supplier decision for at least five years while providing future additional software sell-in opportunities.
Koontz sees potential revenue upside to his 2H23 estimate and material upside ($40 million-$70 million) to 2024. The gross margin could also see a modest boost from the increased software mix.
Charter's selection affirms the strength of HLIT's dominant market position, which the analyst expects to remain unchallenged for many years.
HLIT remains among the analyst's top 2 picks for 2023.
Price Action: HLIT shares traded higher by 8.82% at $14.24 on the last check Tuesday.
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