Cantor Fitzgerald analysts Justin Kew and Tom Liston say Wi-LAN (TSX:WIN) these days is a rare thing: a stock with significant upside and a valuation that provides a floor price.
This morning, Wi-LAN reported its Q1, 2013 numbers. The company lost $6.43-million on revenue of $18.4-million, which it says was ahead of its own guidance of $18.1-million.
CEO Jim Skippen said the quarter, which saw the company’s stock languish, was nonetheless beneficial to shareholders.
“In the first quarter of 2013, our revenues, expenses and adjusted earnings all came in better than our guidance for the quarter,” he said. “Working within our capital allocation model, Wi-LAN returned $4.9-million to shareholders in dividend and share buyback payments.” Skippen added: “We advanced negotiations with many companies and signed, in the second quarter, a broad TV and digital TV display licence with Panasonic Corp.”.
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Kew and Liston say Wi-LAN’s management team is pragmatic, noting that the company has never actually gone to trial. The Cantor Fitzgerald analysts expect that most of its scheduled trials will be settled, giving Wi-LAN a similar lift in EBITDA and revenue that it saw in the second half of 2011, when its stock was a high-flier on the TSX. In a research update to clients this morning, Cantor Fitzgerald reiterated its BUY recommendation and $7.00 target price on Wi-LAN.
In anticipation of investors looking for individual catalysts on upcoming trials, The Cantor Fitzgerald analysts underscored in today’s research note that Wi-LAN doesn’t depend on the outcome of any one patent infringement case, but builds “a compelling and robust case of multiple patent infringement cases”.
Kew and Liston say they believe the market is not fully pricing Wi-LAN’s cash flows or assets properly. The analysts say they calculate the value of the company’s cash, its cash flow from current contracts and the value of its patent portfolio at $640-million. This, they say, means Wi-LAN would be worth $3.70 a share if it were to wind down right now, and discounts completely the ongoing value of its patent portfolio and cash flow from renewals on its current licenses.