Viavi Solutions (VIAV) is likely to see a turnaround starting in fiscal Q2, driven by increased investment spending from communication service providers and a faster pace of network deployments, UBS said in a report emailed Tuesday.

Viavi, a provider of testing and monitoring equipment for communication networks, has seen a downturn, with revenues falling by 14% in fiscal 2023 and 10% in fiscal 2024. However, UBS said it estimates "secular growth trends" in fiber, 5G, and data centers will drive Viavi's business back to mid-single-digit growth in fiscal 2026 and beyond.

Viavi has transformed its Networks business, or NSE segment by focusing on fiber, 5G, and data centers while reducing exposure to copper fixed-line markets, but a slight growth in communication service provider capex restricts long-term expansion to mid-single digits, UBS said, adding that "[w]e model 3.6% growth in NSE in F25 as the end-markets begin to recover, accelerating in F26 to 7% growth as the business recovers."

UBS forecasts a 280-basis-point operating margin expansion and a 46% increase in earnings per share for fiscal 2026, driven by revenue growth.

The stock is considered "fairly valued" at 20 times the firm's $0.53 EPS estimate for fiscal 2026, "given the cyclicality and mid-single digit longer-term growth profile," UBS said.

UBS initiated coverage on Viavi with a neutral rating and a price target of $10.60.

Price: 9.65, Change: -0.15, Percent Change: -1.53