Technology -- Communications Technology -- Wireless Equipment
WELL POSITIONED IN BURGEONING M2M
MARKET; INTRODUCING NEW ESTIMATES
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.
? 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.