clarus 21$; cannacord 23Both targets from the end of january.
Clarus:
U.S. Stimulus Plan – More Spending on
Infrastructure & Transmission; Increasing
Target Price on Upside Potential
Highlights
1. Obama Stimulus Plan to Invest in Grid Improvement President Obama’s proposed stimulus package targets a variety of efforts, which includes investment in modernizing the electricity grid through smart grid technologies and improved transmission. RCM’s communications equipment plays a key role in grid development as
the equipment is embedded at various points. We expect the initiative to present a substantial growth opportunity for the
Company.
2. Electric Power Market Momentum to Continue We expect the electric grid market to be the primary revenue
growth driver going forward. This segment represented the majority of revenues as of the last quarter (~70%). Some 275,000 substations exist worldwide; growing at ~3,500 every year and the total market opportunity is estimated at $2.75 billion over the next 5-10 years.
3. Strong Performance and Execution RCM continues to deliver exceptional performance and growth with
record revenue and profitability results. Purchase orders are up ~85% y-o-y as of Q2/09, which when looking on a 12-month trailing basis, is exceeding revenue growth and providing added revenue
visibility. A net cash position of US$45.5 million positions the Company well for accretive acquisitions in the near-term.
4. Increasing Target Price on Upside Potential We expect the stimulus package to unfold during CY2009 and
translate into a positive impact to RCM in FY2010. We are increasing our 2010E estimates to account for the potential upside.
We are now forecasting revenues of $85 million from $81 million
previously and EPS of $1.03 ($0.99 prior). We are adjusting our F/X
assumption from par to $0.80 US$/C$. Our target price increases
to $21.00 per share from $16.00 previously, based on 16.5x P/E
FY2010 multiple.
Conclusion and Recommendation
We expect RuggedCom to significantly benefit from the initiatives in the U.S as renewable power additions combined
with electric vehicle connections should exacerbate the already endemic lack of transmission in North America.
RuggedCom is well positioned for a major automation of the U.S. grid as its products are deemed to be the most
reliable and durable for substation and outdoor applications. Additionally, the new administration also intends to invest
in the “Smart Grid” and additional security, which RuggedCom is well positioned to profit from. We are maintaining our
BUY recommendation and are increasing our target price to $21.00 per share from $16.00 previously.