Viavi Solutions Stock Falls 18.2% in 3 Months: Is it an Opportunity?

Shares of Viavi Solutions Inc. VIAV have declined 18.2% in the past three months despite a sharp improvement in the company's operating performance. Fiscal 2026 revenues rose 40% year over year to $1.5 billion, while non-GAAP earnings per share increased 112.8% to $1.00. Fourth-quarter revenue climbed 52.5% to $443.1 million, and earnings rose 161.5% to 34 cents per share.

The disconnect raises a key question for investors: Can accelerating demand and expanding margins support VIAV after its pullback, or will concerns about wireless testing, cash generation and share dilution continue to weigh on the shares?

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VIAV's 3-Month Decline Tests the Growth Story

Viavi's fiscal 2026 results provide a strong fundamental backdrop despite the recent decline. Fourth-quarter revenues, non-GAAP operating margin and earnings exceeded the high end of management's guidance. Non-GAAP operating margin reached 24%, up 960 basis points year over year, while earnings of 34 cents per share were 13.3% above the Zacks Consensus Estimate.

The improvement extended through the full year. Fiscal 2026 non-GAAP operating income increased 101.6% to $312.9 million, while the non-GAAP operating margin expanded to 20.6% from 14.3% a year earlier. Higher revenue and favorable product mix drove the improvement.

VIAV's recent price performance also needs context. The stock is down 18.2% over the past three months but has gained 290.8% over the past year. Over the same three-month period, the Zacks sub-industry has declined 13.9%, while the Zacks Computer and Technology sector gained 2.6%.

Viavi Solutions Still Benefits From AI Infrastructure

Data center and AI infrastructure demand remain important growth drivers for Viavi. The company said fiscal 2026 growth was driven mainly by demand for lab, production and field products tied to the data center ecosystem, along with aerospace and defense products. Acquisitions of certain Spirent product lines and Inertial Labs also contributed to growth.

The Network and Service Enablement (NSE) segment has become the company's main growth engine. NSE revenues increased 52.3% in fiscal 2026 to $1.18 billion and accounted for 77.9% of total revenue. Fourth-quarter NSE revenue jumped 69.2% year over year to $353.9 million, driven by demand for lab, production and field products, aerospace and defense products and acquired Spirent product lines.

Viavi is also expanding its testing portfolio for AI infrastructure. Recent product launches include an Ultra Ethernet Transport validation platform and the CyberFlood CF1000, a 400G security and application performance testing platform designed for AI data center infrastructures. These offerings broaden the company's exposure to high-speed networking and AI-related testing requirements.

VIAV's Earnings Momentum Supports the Bull Case

The pace of NSE growth is central to the bullish case. Fourth-quarter NSE revenues of $353.9 million exceeded the company's $340-$348 million guidance range. NSE gross margin increased 190 basis points year over year to 64.1%, while operating margin reached 20%.

Management expects the momentum to continue into fiscal 2027. Viavi expects first-quarter revenues of $450-$460 million and non-GAAP EPS of 40-42 cents. The company also expects OSP revenue of $90-$92 million and operating margin of 43.2% for the quarter.

The Zacks Consensus Estimate projects fiscal 2027 revenues of $1.874 billion and EPS of $1.22 compared with $1.518 billion and $1, respectively, in fiscal 2026.

Among industry peers, Knowles Corporation KN carries an Outperform recommendation, while ADTRAN Holdings, Inc. ADTN has an Underperform recommendation, providing additional context for investors evaluating VIAV's position within the Communication - Components industry.

Viavi Solutions Faces Wireless and Cash Flow Risks

The growth story has several offsets. Management has indicated that wireless test demand remains weak, with no near-term recovery expected. Fiscal fourth-quarter growth was driven primarily by data center, aerospace and defense demand, leaving the traditional wireless market with limited visibility.

Cash generation also warrants attention. Viavi generated $113.9 million in operating cash flow and $82.8 million in free cash flow in fiscal 2026. Fourth-quarter operating cash flow improved to $66.7 million from negative $26.3 million in the prior quarter, but the sharp sequential swing highlights the sensitivity of cash conversion to working capital and other cash requirements.

Capital allocation creates another trade-off. Viavi raised $575 million through a follow-on equity offering in fiscal fourth-quarter 2026 and issued approximately 12.78 million shares at $45 per share. The company used $450 million of the proceeds to repay Term Loan B. While the debt reduction strengthens the balance sheet, the larger share base spreads future earnings across more shares. Basic shares used in fourth-quarter EPS calculations rose 7.2% year over year, while diluted shares increased 15%.

OSP profitability is another variable to monitor. OSP revenue increased 9% in fiscal 2026, but its gross margin declined to 52.2% from 53.2% a year earlier, indicating that product mix can affect profitability even when revenue is growing.

VIAV's Rank Signals Caution Despite Growth

VIAV currently carries a Zacks Rank #3 (Hold) and a Neutral long-term Zacks Recommendation. Its Zacks Style Scores are a Value Score of D, Growth Score of D, Momentum Score of D and VGM Score of F.

The Zacks Rank is designed to reflect trends in earnings estimate revisions over a one- to three-month horizon, while Zacks Style Scores serve as complementary indicators covering value, growth and momentum characteristics. The VGM Score combines the three individual Style Scores.

For a Zacks Rank #3 stock, the Style Score hierarchy still matters. The Style Score framework favors higher grades, with A and B scores offering the most favorable profile. VIAV's D scores and F VGM Score therefore temper the bullish fundamental case. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

VIAV's three-month decline does not by itself establish a buying opportunity. Fiscal 2026 results show accelerating revenue, strong NSE growth and expanding margins, while fiscal 2027 guidance points to further earnings growth. However, weak wireless demand, variable cash generation, share dilution and the stock's Zacks Rank #3 argue for a measured view as investors weigh the improving fundamentals against the risks.

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This article originally published on Zacks Investment Research (zacks.com).

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