Canaccord’s Young maintains hold rating on EXFO, raises price target

EXFO’s long term future is solid, but the near term is characterized by its lack of visibility, says Canaccord analyst Robert Young.EXFO’s (TSX:EXF) long term future is solid, but the near term is characterized by its lack of visibility, says Canaccord analyst Robert Young.

On Tuesday, EXFO reported its fourth quarter and fiscal 2013 results. The company earned $1.34-million on revenue of (U.S) $60.9-million, up from last year’s $58.9-million topline.

Young says EXFO’s revenue was in line with his expectations and the company’s bottom line beat both his and the street consensus. On the down side, however, the Cannaccord analyst says the company’s bookings and guidance were weak. He says EXFO is experiencing limited business visibility, compounded by price erosion in a telecom spending environment that is soft.

Young says EXFO continues to be impacted by a European spending environment that is weak. While the U.S remains a relative bright spot, he note, European operators are delaying 4G deployments. The Asia Pacific region, he says, is a mixed bag, with indications of strength in China that may begin to present “significant opportunities” in the second half of fiscal 2014.

Founded in 1985, Quebec City-based EXFO manufactures test and service assurance instruments for fixed and mobile telecom networks. The company now employs more than 1800 people worldwide and has grown its revenue to (U.S) $242.2-million, up from $153-million in 2009.

In a research update to clients following the results, Young maintained his HOLD rating on EXFO, but because of his expectation of increased margin and EBITDA in fiscal 2014, raised his one-year target price to (U.S) $5.00 from his previous $4.50 target. His target is based on 9x his expectations for EXFO’s EV/EBITDA in fiscal 2014.

At press time, shares of EXFO were up 2.8% to $5.50.

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