Global Maxfin’s Garcea initiates coverage of Wi-LAN with a BUY, $5.25 target

Global Maxfin analyst Ralph Garcea says Wi-LAN (Wi-LAN Stock Quote, Chart, News: TSX:WIN) operates in a risky space, but the company’s seasoned management team, solid assets and a strong balance sheet mitigate that risk.

Garcea Yesterday initiated coverage of Wi-LAN with a BUY rating and $5.25 one-year target.

With a full docket of trial dates in the second half of 2013, Wi-LAN, says Garcea, is about to get busy, and investors are hoping its slumping stock will follow suit.

To the end, he notes that the Ottawa-patent player looks undervalued compared to its peers. He says Wi-LAN trades at EV/Sales of 3.4x and an EV/EBITDA of 5.6x, while comparables trade at 3.2x and 8.0x, respectively.

In the near term, says Garcea, Wi-LAN should be propelled by its busy upcoming slate of cases, but its long term success will be determined by its ability to acquire new patent portfolios, and leverage existing partnerships against challenges such as regulatory changes, such as the ones currently being proposed by the Obama administration.

What effect proposed changes to the way patent claims are handled in the United States will have on Wi-LAN’s business is at this point an unknown, says the analyst.

Still, says Garcea, the wind is squarely at Wi-LAN’s back. He cites a 2011 document called the “World Intellectual Property Report 2011- The Changing Face of Innovation” that shows that royalty and licensing fee revenue rose from $2.8-billion in 1970 to $180-billion in 2009. Garcea says it is likely, given the accelerating growth of innovation, that this number climbed to more than $200-billion in 2012, and could approach $300-billion by 2020.

At press time, shares of Wi-LAN were down .5% to $4.36.

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