Sandvine slides on revenue warning, Byron’s Astle says Hold

Sandvine (TSX:SVC) today released a preliminary revenue estimate for the second quarter of 2012, which ended May 31. The Waterloo-based company said it expects quarterly revenue which it expects to release on July 6th will be in the range of $18.0-million to $18.5-million. The street had been expecting this year to come in at $21.5-million.

Shares of Sandvine, which had been sliding since the beginning of May, lost an additional 12% today to close at $1.25. In last year’s Q2, Sandvine earned (US) $63,000 on revenue of $24-million.

Byron Capital analyst Tom Astle says the string of weak quarters for Sandvine is disappointing and wonders if the company’s products have become less competitive than its peers, which are enjoying strong industry fundamentals. Still, he reasons, there is an element of volatility in the contracts and the company’s Telefonica business could easily return and erase the current and prevailing negativity. In a research update to clients today, Astle maintained his HOLD rating and $1.50 twelve month target on the stock.

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Sandvine, which was formed in 2001, sells technology that gives service providers a window into the world of their chaotic traffic. The company’s deep packet inspection technology equips network operators with the critical information they need to make decisions and form policies on service plans, capital investments and premium services. Sandvine now has more than 200 clients in 85 countries, including Cricket, Telefonica and Comcast. These wins helped its topline grow from $51-million in 2008 to $92.7-million in 2010. 2011, however, was a step backward, as revenue came in at just $89.3-million.

With its stock sliding, Astle says Sandvine may be entering territory that is attractive from a valuation standpoint. He points out the possibility for consolidation in the sector, and that Sandvine would be a natural candidate because it valuation is now much cheaper than it peers. Astle’s target price of $1.50 is based on fifteen times his estimate of Sandvine’s 2013 earnings, plus the fifty cents in cash the company has on hand.

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