CommScope (COMM) is a key part of the telecommunications network service provider ecosystem, but its current valuation has "significantly more optionality" in its $9.3 billion debt than actually exists, Morgan Stanley said in a note Monday.

The brokerage said that there have been some positive developments along the way. Demand for fiber has stabilized and improved, the artificial intelligence opportunity related to fiber is gaining attention and affecting competitor valuations. Planned asset sales are expected to bring in about $2.1 billion in Q1 2025, and cost reductions have achieved around $250 million, and will improve 2026 EBITDA estimates to about $900 million.

The analysts said that while the market outlook for the company has improved this year, which increases the risk/reward balance, their updated valuation still indicates limited upside to equity due to rising debt prices. The 2025/2026 debt refinancing and improvement in fiber demand show more positive catalysts than negatives in the near term.

Morgan Stanley raised CommScope's price target to $5 from $2.70, but kept equalweight rating.

"In the near term, given refinancing and fiber data points are positives and the expanding range of risk/reward, we remain equalweight. However, we bias post those catalysts negatively as valuation is stretched with more limited options to address the debt, which will still be a meaningful burden past those catalysts," the analysts said.

Price: 6.69, Change: -0.10, Percent Change: -1.47