Cantor Fitzgerald raises target on Redline Communications to $8.25

Cantor Fitzgerald analyst Tom Liston says despite ho hum recent numbers, things are looking up for Redline Communications (Redline Communications Stock Quote, Chart, News: TSX:RDL).

The Markham-based wireless equipment supplier yesterday reported its Q4 and fiscal 2012 results. For the year, the company lost $9.5-million on revenue of $49.04-million, which was down from 2011’s $58.02-million topline.

Redline says 45% of its sales are now in the energy vertical, and its order backlog is improving.

CEO Eric Melka commented on the results, and he focused on the positive.

“I am very happy with our 2012 results. Strong product performance, high customer satisfaction and a growing reputation helped us increase our sales momentum, our average contract size is larger, and our top-tier customers are expanding their networks,” he said. “These complex networks are providing significant long-term opportunity for Redline as they roll out over time and I am very excited about the future.”

Liston says Redline’s fourth quarter adjusted EPS of $0.09 beat his forecast of $0.02 and the street consensus of $0.06. He notes that the company’s gross margin climbed to 61% from 56%, which was the result of a change in product mix.

Liston points out that Redline is beginning to add significant wins in the telecom sector to its recent success in supplying wireless solutions to oil and gas fields. In a research update to clients this morning, Liston maintained his BUY rating on Redline, but raised his target to $8.25 from $7.50. Liston says the reason for the move is he is now basing his valuation on his expectations for the company’s fiscal 2015, rather than 2014.

In 2009 current Redline CEO Melka, who joined Redline from Telemedia Ventures has presided over a near clean sweep of the its business, management team, and board. The company was resuscitated after a disastrous bet on Wi-MAX, a wireless communications standard that was ultimately beaten out by LTE. Melka refocused Redline on a return to its roots in providing broadband wireless equipment to niche markets. By developing what he calls a “software driven hardware platform” and stopping all Wi-MAX development, Redline instantly reversed its fortunes, turning a loss of $10-million in 2009 to a profit of $4-million the very next year.

Shares of Redline Communications closed today up .8% to $6.45.