We are downgrading our recommendation for Arris Group Inc. (ARRS) to Neutral, which means the stock will perform mostly in line with the broader market. The stock price moved up nearly 86% in the last year and is currently trading at the high-end of its 52-week price range. We believe at this valuation level, there is little room for any above-market gain.

Arris’ fourth-quarter 2009 EPS was well above the Zacks Consensus Estimate. However, the first-quarter 2010 financial outlook given by management was tepid, primarily due to weak seasonality. Management indicated that sales towards its biggest customer, Comcast Corp. (CMCSA), will decline in 2010 compared to the previous year.

Comcast has already completed the initial roll-out of DOCSIS 3.0 technology. Arris was the main equipment supplier. Although Arris announced that this loss will be more than covered from sales to other customers like Time Warner Cable Inc. (TWC), we remain skeptical regarding the company’s full year 2010 revenue growth.

Arris is solely dependent on cable operators for its revenue. The lack of industry diversification may result in limited business prospects since potential shifts in industry dynamics may adversely impact cable TV service providers. This is evident from the fact that large telecom carriers in the U.S. are increasingly expanding their high-speed fiber based network, while satellite TV providers are also upgrading their networks.

Zacks Investment Research

1. (ARRS) Arris Group – The Siphonic Flush of ManagementBelieve it or not, we are simple blue collar investors that for the most part,...
2. (ARRS) Arris Group Upgraded to OutperformWe upgrade our recommendation for Arris Group Inc. (ARRS) to Outperform ahead of its fourth...
3. (ARRS) Arris Group Meets Earnings ExpectationsArris Group Inc. (ARRS) recently declared third quarter 2009 financial results. Quarterly total revenue of...
4. (ARRS) Arris Group is on a Buying SpreeArris Group Inc. (ARRS) has decided to acquire the privately held Digeo Inc. Incorporatedluding its...
5. (ARRS) Arris Group Marching Forward with Cable Modem Termination SystemArris Group Inc. (ARRS) continues to receive increasing market traction for its industry leading C4...
6. (ARRS) Arris Fortifies Digital Video FootholdYesterday, Arris Group Inc. (ARRS) said it acquired patents and video processing technology for digital...

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