<div id="readability-page-1"><div>When Mairs and Power (Trades, Portfolio) Growth Fund disclosed a new position of 731,000 shares in Clearfield, Inc. (CLFD, Financial) earlier this year, the filing stood out. The Minneapolis-based fund, which has been running money since 1958, does not typically wade into $420 million small-cap. In its quarterly commentary, the fund cited Clearfield's ability to reduce labor costs for broadband operators and pointed to the federal BEAD program and AI-driven fiber demand as longer-term catalysts (Mairs and Power (Trades, Portfolio) quarterly commentary). The stock had been falling for the better part of a year at that point, down roughly 35% from its 52-week high, weighed on by repeated delays in federal broadband funding and two years of losses on the income statement.CLFD GF Value: TBD Clearfield IncThe stock has moved since this piece was first written. The stock, which was trading around $31, has surged to almost $45 after the Q1 FY2026 results, a nearly 50% gain in a matter of weeks. So I want to be upfront about what that does to the investment case before we get through the numbers. At around $31 a share, Clearfield carried a market capitalization of about $422 million. The balance sheet holds $157 million in cash and investments against virtually no debt (SEC filings). Strip out that cash and you are paying close to $265 million for a fiber connectivity business that just posted 16% revenue growth and carries gross margins above 33%. That is about 1.7 times trailing sales. Corning Inc. (GLW, Financial), a much larger and slower-growing peer, trades at roughly 2.8 times on the same basis (StockAnalysis).<figure></figure>Trading ViewAbout the companyClearfield designs and manufactures the fiber optic panels, cabinets, enclosures and pathways that telecom operators use to build out broadband networks. The company was incorporated in 1979 and rebranded as Clearfield in 2008 and is based in Minneapolis. Its flagship product, FieldSmart, is a modular system that has become widely adopted among smaller broadband service providers across rural America. The lineup also includes WaveSmart optical components, FieldShield conduit systems and a new high-density platform called NOVA, launched in January 2026, that targets data center and edge compute applications (Clearfield investor relations).The competitive position rests on a simple but powerful idea. According to the company's FastPass field study, Clearfield products cut fiber installation time by up to 38%, saving roughly 39 minutes per connection. A technician doing eight installs a day gains one or two additional stops. In rural markets, where Tier 2 and Tier 3 carriers handle the majority of deployments, labor is the largest single cost. Cheri Beranek, the company's chief executive, put it this way during a recent investor presentation: the value is not in making better fiber optic cable. It is in making it faster and cheaper to get that cable from the central office to the customer's front door. Once a service provider has built out its network on FieldSmart, switching to another vendor is expensive and disruptive, which gives Clearfield a degree of stickiness that its modest size might not suggest.The Nestor Cables subsidiary, a lower-margin European operation, was divested in November 2025. All figures discussed here reflect continuing operations (SEC filings).A business built on thin marginsClearfield had averaged relatively low, but fairly consistent, operating margins of 8% to 12% for most of the prior fifteen years before the pandemic. The business was never flashy. It was targeted at rural broadband operators, had a slow and consistent pace of growth, with low capital requirements. For most of that period, however, what it certainly did not do was return meaningful cash to shareholders.The balance sheet looks very different today, and that matters. The $157 million in cash and investments has not been accumulated from decades of prudently allocating capital. What remains is mainly the trail end of a surge in demand that caught the whole world off guard. When fiber deployment accelerated sharply during and after the pandemic, revenues roughly tripled in two years. Margins stretched well beyond historical levels. The company was accumulating cash faster than it could deploy it.That changes how you should be thinking about the current setup. $157 million is a real number and enough to ensure you won't have losses but it is more like cash stacked a few times than proof that the business has transformed into a cash compounding machine. Once inventory is gone and receivables are paid, that money becomes available for return, precisely the signal being sent by the $85 million buyback.The big question is whether Clearfield generates real excess cash from here, or simply runs at the low margins it earned before the boom. That largely depends on how much of the BEAD-driven volume comes through and when.A quarter that reset expectationsThe first fiscal quarter of 2026, covering the three months through December 2025, beat both internal guidance and Wall Street estimates. Continuing operations brought in $34.3 million, up 16% year-over-year and above management's guided range of $30 million to $33 million (Q1 FY2026 earnings release). Most of Clearfield's customers are community broadband operators who had been waiting two years for more clarity on BEAD funding. That demand finally started to move.Gross margins expanded 400 basis points from 29.2% to 33.2%. The company posted a net loss of $0.02 per share while operating costs rose 23% to $13.2 million, as it added headcount and spent more on technology. In the call, Beranek mentioned that there are indications of stabilization and signs of an early recovery in Community Broadband demand that boosted management's confidence going into the rest of fiscal 2026 (Q1 FY2026 earnings call transcript).Full-year guidance was reiterated: revenue of $160 million to $170 million and earnings per share of $0.48 to $0.62. The midpoint implies a return to profitable territory in the second half, ending a run of losses that stretches back through fiscal 2024.<div><table><tbody><tr><th colspan="1">Metric</th><th colspan="1">Q1 FY2026</th><th colspan="1">Q1 FY2025</th><th colspan="1">Change</th></tr><tr><td colspan="1">Net sales (continuing ops)</td><td colspan="1">$34.3M</td><td colspan="1">$29.7M</td><td colspan="1">+16%</td></tr><tr><td colspan="1">Gross margin</td><td colspan="1">33.2%</td><td colspan="1">29.2%</td><td colspan="1">+400 bps</td></tr><tr><td colspan="1">Operating expenses</td><td colspan="1">$13.2M</td><td colspan="1">$10.7M</td><td colspan="1">+23%</td></tr><tr><td colspan="1">Net loss per share</td><td colspan="1">($0.02)</td><td colspan="1">($0.02)</td><td colspan="1">Flat</td></tr><tr><td colspan="1">Cash and investments</td><td colspan="1">$157M</td><td colspan="1">N/A</td><td colspan="1">-</td></tr><tr><td colspan="1">Debt</td><td colspan="1">~$0</td><td colspan="1">~$0</td><td colspan="1">-</td></tr></tbody></table></div>Source: Clearfield Q1 FY2026 earnings release, SEC filingsThe cash cushionA current ratio of 12.55 and debt-to-equity of 0.03 mean that survival risk is essentially zero. Clearfield incurs no capital raise or refi pressures. Regardless of the BEAD timelines, it has internal cash enough to fund product development, operations and share repurchases for years.The board authorized a $85 million buyback program in November 2025, which represented approximately 22% of the market cap at that time. The company repurchased $5.2 million in shares during the first quarter alone (SEC filings). The buyback, at the current valuation, constitutes an attractive investment of capital, Chief Financial Officer Daniel Bergstrom said. At current prices, the remaining authorization could still retire a meaningful portion of the float, with direct accretion to earnings per share as margins normalize.BEAD: the catalyst that keeps getting delayedAt the top level, the $42.5 billion Broadband Equity, Access and Deployment program looms over the entire fiber connectivity space. The funds have been appropriated by Congress, and the NTIA has worked through some of the state grant applications. But &#34;eventually&#34; has been the working word for three years, and Clearfield itself is staring down less than $10 million in BEAD-driven revenue for Fiscal 2026 (Q1 FY2026 earnings call transcript). The Build America, Buy American Act, which promotes domestic fiber sourcing, has added further friction to the timeline.I would not anchor the investment case on BEAD, but I also would not ignore it.Clearfield's products represent approximately 4 to 5 percent of the total deployment cost for broadband. The company needs only a small share of total spend to generate a significant incremental uplift. Beranek said during the earnings call, Clearfield is &#34;tracking 319 broadband service providers&#34; that are actively preparing for BEAD-funded projects. Community broadband operators, the core customers of Clearfield, are expected to move faster than big carriers such as AT&amp;T Inc. (T, Financial) and Charter Communications Inc. As former FCC commissioner Harold Furchtgott-Roth wrote last year (Business Insider): &#34;One of the rare genuinely bipartisan infrastructure priorities remaining in Washington&#34;, suggesting the funding is unlikely to be clawed back regardless of the political environment.My sense is that BEAD becomes meaningfully visible from mid-2026, with spend running out through 2030. You have to have at least part of a BEAD inflection for the stock to get going here at these prices. A better way of thinking about it is optionality the market isn't currently giving much credit for.In other news, Verizon Communications Inc. (VZ, Financial) has just finalized a merger agreement with Clearfield customer Frontier Communications. That transaction could open the door to a larger relationship, though it is too early to model any revenue impact.Mairs and Power (Trades, Portfolio) is not alone. Royce and Associates and Cooper Creek Partners have both added positions during the downturn, and with insiders owning roughly 13% and institutions another 64%, the remaining float is limited enough to exaggerate moves in either direction.ValuationAt $45, the market capitalization has risen to roughly $580 million. Strip out the $157 million in net cash and the enterprise value sits at around $423 million, compared to $265 million when the original case was made. The owner yield that looked attractive at cyclical lows has compressed accordingly.If operating margins recover to historical levels of 15% to 20%, free cash flow could reach $20 million to $30 million a year. At that point, the current enterprise value starts to look modest.A simple scenario framework illustrates the range of outcomes. If Clearfield reaches $200 million in revenue by fiscal 2027 at a 12% EBITDA margin, the business produces about $24 million in EBITDA. A 15 times multiple, which is in line with specialty infrastructure equipment peers, yields an enterprise value of $360 million. Add back an estimated $100 million in net cash after buybacks and the equity value is roughly $460 million, or about $33.60 a share. At $45, the stock has already moved through the base case. Everything from here depends on the bull scenario playing out.In a bull scenario where BEAD accelerates and margins recover to 16% on $250 million in revenue, the same framework produces equity value above $60 a share. In a downside case where delays persist and margins remain compressed, the net cash balance provides a floor in the mid-teens. The sell-side consensus target is $43.50 per share, with a median outperform rating from seven covering firms (MarketBeat).<div><table><tbody><tr><th colspan="1">Item</th><th colspan="1">At $31</th><th colspan="1">At $45</th></tr><tr><td colspan="1">Market capitalisation</td><td colspan="1">~$422M</td><td colspan="1">~$580M</td></tr><tr><td colspan="1">Less: net cash</td><td colspan="1">($157M)</td><td colspan="1">($157M)</td></tr><tr><td colspan="1">Enterprise value</td><td colspan="1">~$265M</td><td colspan="1">~$423M</td></tr><tr><td colspan="1">EV / trailing sales</td><td colspan="1">~1.7x</td><td colspan="1">~2.7x</td></tr><tr><td colspan="1">Comparable (Corning EV/Sales)</td><td colspan="1">~2.8x</td><td colspan="1">~2.8x</td></tr></tbody></table></div>Source: Author estimatesThe discount to Corning that made the original trade so clean has effectively closed. At 2.7x sales, you are no longer paying a meaningful discount for a faster-growing, debt-free business. You are paying roughly in line with a much larger peer. That does not make the stock expensive in absolute terms, it makes it fairly priced for the base case.Buying here is buying a bet on BEAD execution and margin recovery. It is not a free option anymore. The easy money, buying a net-cash business at cyclical lows for less than 2x sales, has already been collected.RisksThe most immediate risk is continued slippage in BEAD timelines. If federal funding execution gets pushed into 2027 or later, the revenue inflection that the market is starting to price in will not materialize on schedule, and the stock will likely trade sideways.Client concentration deserves attention. Community broadband providers and regional carriers constitute the majority of revenue, and the loss of a large customer would be felt on the income statement. From a competitive perspective, Corning and Prysmian Group both spend multiples of what Clearfield spends on research, raising a fair question about whether the fiber connectivity space becomes more commoditized over time. The stock carries a beta of 1.94 (StockAnalysis), which makes it a poor fit for conservative accounts. And return on invested capital, currently at 1.07%, sits well below the estimated cost of capital of 14.68%. That number needs to start moving in the right direction within the next 12 to 18 months, or the institutional investors who have been building positions may begin to reassess.ConclusionThe original thesis has worked. From $31 to $45 in a matter of weeks is a meaningful outcome. Where things stand now is more nuanced. For investors already in the position, the case for holding is intact. For new money entering at $45, this is a bet on BEAD and margin recovery rather than a pure value play. Know what you own.</div></div>

CLFD

Clearfield, Inc. (CLFD) has seen its stock surge nearly 50% to almost $45 after Mairs and Power Growth Fund disclosed a new position. The company, which designs fiber optic products, has a strong balance sheet with $157 million in cash and low debt. Despite past low margins, recent demand has led to significant revenue growth. The future hinges on the impact of federal broadband funding and the company's ability to maintain profitability amidst changing market conditions.

Clearfield: Still Cheap After the Run, but the Easy Trade Is Done