Why Ribbon Communications Stock Is Soaring Today

Ribbon Communications (NASDAQ: RBBN) stock is surging Thursday's trading. The communications and networking specialist's share price was up 7% as of 2:30 p.m. ET.

Ribbon published its third-quarter results after the market closed yesterday, and both sales and earnings for the period came in below the average analyst Wall Street target. But the company's forward guidance was encouraging enough to offset those shortfalls, and the stock is making big gains on the heels of the recent earnings report.

Ribbon stock isn't surging thanks to its Q3 results

Ribbon reported non-GAAP (adjusted) earnings per share of $0.05 on sales of $210.24 million, falling short of the average analyst estimate's call for adjusted per-share earnings of $0.05 on sales of roughly $212.1 million.

Revenue was up roughly 3% year over year in the period, with growth being powered by the company's cloud-and-edge secure communications business. Adjusted earnings per share were flat compared to the prior-year period. While the Q3 results weren't flashy in their own right, Ribbon did guide for a significant improvement in the current quarter.

Ribbon's Q4 guidance was much better than expected

Ribbon is guiding for a substantial sequential sales increase in the current quarter, with expectations for sales to come in between $235 million and $255 million. If the business were to hit the midpoint of that guidance range, it would mean delivering sequential quarterly sales growth of roughly 17% and annual growth of roughly 8% compared to the $226 million in sales posted in last year's quarter. Meanwhile, the company's adjusted gross margin is projected to come in between 55.5% and 56% -- suggesting a moderate increase from the 55% margin posted in Q3.

Ribbon anticipates that it will see a significant sales uptick in conjunction with growing business with Verizon Communications and other communications carriers, new awards with U.S. defense agencies, and growth for its U.S. rural broadband segment. While it remains to be seen if the business will be able to extend that momentum into next year and beyond, it's not surprising that the better-than-expected guidance has investors feeling bullish today.

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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.