Sandvine is still undervalued, says Stifel Nicolaus

Stifel Nicolaus analyst Blair Abernethy says Sandvine’s (Sandvine Stock Quote, Chart, News: TSX:SVC) Q2, reported this morning, reveals a company that is improving on many fronts.

Sandvine earned (U.S.) $892,000 on revenue of $23.5-million in the quarter, following up on a Q1 in which it the company earned $1.7-million on revenue of $25-million.

CEO Dave Caputo said that while the quarter was solid, it fell short of the company’s own expectations.

“Year-to-date revenue is up more than 25 per cent and we continue to believe that we are well positioned for a year of strong revenue growth,” he said. “While we had anticipated additional significant orders during the second quarter, some have arrived in the month of June. We are also pleased to have remained profitable in the second quarter and to have grown our cash balance again.”

Abernethy notes that Sandvine ended the quarter with more than $87-million in cash and short term investments, meaning it is well positioned to pursue acquisitions and continue its current share buyback. Abernethy’s interest is piqued by the update the company provided on its partnership with IBM. He is encouraged that the pair are working together on joint opportunities and believes an announcement on a second customer win will come shortly, and that IBM might eventually become a meaningful contributor to the company’s pipeline.

Following today’s numbers the Stifel Nicolaus analyst adjusted his estimates on Sandvine slightly upward. He now expects that the Waterloo-based company will generate EBITDA of $22.3-million and will grow its topline by 23.5% to $108.6-million in fiscal 2013, up from his old topline estimate of $106.8-million, and EBITDA number of $15.1-million. He expects Sandvine will generate EBITDA of $30.5-million on revenue of $129.4-million the following year. Abernethy maintains his BUY rating and $2.60 one-year target on Sandvine.

Shares of Sandvine closed today down 7.6% to $1.95.

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