Redline’s future looks bright despite soft quarter, says Cantor’s Kew

Cantor Fitzgerald analyst Justin Kew says that despite Q2 results that fell below expectations, he is encouraged by Redline Communications’ (Redline Communications Stock Quote, Chart, News: TSX:RDL) growing order backlog.

On Wednesday, Redline reported its Q2, 2013 results. The company lost (U.S.) $533,889 on revenue of $8.9-million.

Kew notes that the quarter missed both his and the street’s expectations. He felt the company would post a topline of $10.5 million, the street consensus was for $11.4 million.

But the Cantor Fitzgerald analyst reminds that Redline’s order backlog rose to a record $22.2 million, which is about three times as large as it was at this time last year. What’s more, says Kew, two deals with a total value of more than $2-million were unable to be completed in this quarter, and will move forward to Q3. He thinks this sets up a strong back-half to the year for the company.

In a research update to clients following the results, Kew maintained his BUY recommendation but lowered his one-year target price to C$7.75, down from $8.25.

Kew says Redline management has placed a lower priority on profit as it seeks to rapidly grow market share for its Broadband Wireless Infrastructure product line. He believes this is a wise strategy, given the size of the market opportunity. The Cantor Fitzgerald analyst says he bases his valuation on his expectations for fiscal 2015, when he believes Redline’s true earnings potential will begin to be revealed.

At press time, shares of Redline Communications were even at $5.15.

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