UPDATE: UBS Starts Viavi Solutions (VIAV) at Buy

(Updated - August 13, 2015 8:37 AM EDT)

UBS initiated coverage on Viavi Solutions (NASDAQ: VIAV) with a Buy rating and a price target of $7.50. Analyst Amitabh Passi sees limited downside based on SOTP analysis, as well as upside optionality from a more stable T&M business.

"There are 3 key sources of debate on the name: a) quality of management, b) demand outlook in the test & measurement (T&M) business and c) value ascribed to the $4.5b of net operating losses, or ~$1.5b (UBSe) of deferred tax assets (DTA). With the Viavi CEO having just resigned, we believe there is now an increased urgency and willingness by the Board to focus on execution excellence and stabilizing the business," said Passi.

The analyst added, "The outlook for the T&M business remains challenged due to a combination of market transitions and execution challenges but we believe excess cash, DTAs, as well as the healthy Optical Security Products group (OSP) limit downside to the shares. We continue to believe there is significant value trapped in the DTAs which can be unlocked via asset sales/mergers. While the "face value" of the DTAs is ~$6/share ($1.5b/240m shares), we conservatively ascribe a value of just $1.15/share in our base case. Our SOTP analysis therefore suggests a base case value for Viavi of ~$7.50/share, upside to $12/share and downside to $4.50/share. We find the risk reward favourable."

For an analyst ratings summary and ratings history on Viavi Solutions click here. For more ratings news on Viavi Solutions click here.

Shares of Viavi Solutions closed at $5.56 yesterday.

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