Canaccord
Technology -- Communications Technology -- Wireless Equipment
UPBEAT INVESTOR MEETINGS; WELL POSITIONED FOR LONG-TERM SALES AND EPS GROWTH
Investment recommendation: We hosted investor meetings with Sierra Wireless's CEO Jason Cohenour in Chicago. We believe Sierra's solid Q1/13 results and guidance mark the beginning of long-term sustainable sales growth for this leading M2M supplier. Given leverage in the model through stable operating expenses, we believe growing sales will drive strong EPS growth. Post the sale of its AirCard business on April 2, Sierra Wireless has over $160M in cash representing over $5 per share. Given Sierra Wireless's strong track record of integrating M2M assets such as Wavecom and Sagemcom, we believe Sierra is well positioned to maintain its leadership position in the burgeoning M2M market through potential acquisitions to bolster its industry-leading M2M portfolio. We reiterate our BUY rating and our $14 price target.
Investment highlights
? We believe Sierra Wireless's OEM Solutions product line, comprised of its AirPrime embedded wireless modules, is well positioned to benefit from strong secular growth trends in the burgeoning M2M market. In fact, we believe Sierra's broad 2G, 3G and 4G LTE-based module portfolio with built-in computing intelligence and pre- integrated cloud connection capabilities through its AirVantage cloud platform should enable Sierra Wireless to maintain and grow its industry-leading market share in embedded wireless modules.
? We also believe management will focus on growing its higher- margin Enterprise Solutions product line, comprised of its AirLink intelligent gateways, modems, and its AirVantage M2M cloud-based platform. We anticipate both strong organic growth and growth through acquisitions, as we believe Sierra's potential acquisitions will focus on bolstering the 50%+ gross margin Enterprise division.
? We believe Sierra Wireless can successfully use its $160M-plus in net cash to enhance its healthy M2M organic growth to drive sales growth above our 16% M2M hardware market revenue CAGR.
Valuation: Our $14 price target is based on shares trading at roughly 16x our 2014 pro forma EPS estimate.