Cormark’s Richard Tse raises target on Sierra Wireless to $15

In its first quarter as a pure M2M play, Sierra Wireless (Sierra Wireless Stock Quote, Chart, News: TSX:SX) is showing signs that it can ramp up its earnings leverage, says Cormark analyst Richard Tse.

Yesterday, after market, Sierra reported its Q2, 2013 results. The company earned (U.S.) $61.41-million on revenue of $109.6-million, up 14.9% over last year’s Q2, and a record for the company.

CEO Jason Cohenour said despite the topline performance, the company was focused on the bottom line.

“In our first quarter as an M2M pure play, we delivered record quarterly revenue with nearly 15-per-cent year-over-year growth,” he said. “Our record revenue, combined with solid gross margin and good cost control, led to a significant improvement in non-GAAP earnings, demonstrating the leverage in our operating model as we grow the business.”

In April, Sierra Wireless completed the sale of its AirCard unit to California-based Netgear, representing its last and largest move in becoming an M2M pure play.

Tse says the quarter was in line with his expectations. He notes that Sierra Wireless now has $176.6-million, or $5.77 a share in cash. He says there is upside in Sierra Wireless’s now core M2M business, but also in a potential acquisition. Tse says a product offering that goes beyond modules and into recurring services /software would put the company into a group of select names that trade at much higher multiples than Sierra Wireless does.

Shares of SX on the TSX closed today up 6.4% to $13.99.

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