Technology -- Communications Technology -- Wireless Equipment



Investment recommendation: Sierra announced Q4/12 results

consistent with preliminary results shared post the sale of its AirCard

business to NETGEAR last week. While this sale is dilutive to Sierra’s

2013 pro form EPS due to the lower sales levels, we believe the $100M

in net proceeds provides Sierra with significant financial resources to

focus on and grow its higher-margin M2M business. In fact, given

Sierra’s strong track record in integrating M2M assets, we believe Sierra

is well positioned to maintain its leadership position in the burgeoning

M2M market through potential acquisitions to bolster its M2M portfolio.

We reiterate our BUY rating and maintain our $14 price target.

Investment highlights

? Sierra’s Q1/13 guidance for its continuing operations was revenue in the

range of $98M to $102M and pro forma LPS of $(0.08) to ($0.05). While

the sales guidance and modest operating loss were slightly below

our expectations for the continuing business operations, we believe

Sierra Wireless is well positioned for improving trends throughout

2013 due to normal seasonal patterns and a strong M2M pipeline.

? Further, we believe Sierra Wireless can successfully use the $100M in

proceeds to profitably invest in its M2M business and potentially grow

faster than our 16% M2M hardware market revenue CAGR. While our

updated estimates exclude potential M2M acquisitions, we believe Sierra

Wireless can use the proceeds to bolster its M2M portfolio to drive even

stronger sales growth and higher gross margin than we assume from

the current organic business post the AirCard sale to NETGEAR.

? Due to the AirCard sale, we lower our 2013 pro forma EPS estimate

from $0.95 to $0.26 and introduce our 2014 estimate of $0.85.

Valuation: Our $14 price target is based on shares trading at roughly

16x our 2014 pro forma EPS estimate.