Beaten down Avigilon is still a buy, says Cantor Fitzgerald

Avigilon (TSX:AVO) may be facing real headwinds for the first time in its history as a public company, but the market’s assessment of its Q1 numbers and the departure of CFO Brad Bardua is an overreaction, says Cantor Fitzgerald analyst Justin Kew.

Yesterday, before market open, Avigilon announced that CFO Brad Bardua would be leaving for health reasons. The company said Bardua would be temporarily spelled by his predecessor Wan Jung while a search for a permanent replacement is conducted. Shares of the company fell sharply in advance of the its Q1, 2014 results.

Today, following the release of quarterly results that showed Avigilon earned $8.0-million on revenue of $55.8-million, the stock resumed its downward trend, despite the fact the the topline number was a 74% bump over the same period last year and earnings nearly tripled.

Cantor Fitzgerald Canada analyst Justin Kew says the departure of Bardua introduces uncertainty into the Avigilon story, but the results, which bested his expectations, confirm to him that management continues to execute on what is a “tremendous opportunity”.

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In a research update to clients this morning, Kew maintained his “Buy” recommendation on Avigilon, but lowered his one-year target on the stock from $38.00 to $32.00 due, he says, to the uncertainty surrounding management changes. Kew derives his numbers by applying a 15x multiple to his expectations for the company’s fiscal 2015 EV/EBITDA. “Our valuation is at the upper end of the Canadian technology peer group,” he notes, “however we think that this is justified by the company’s extraordinary forecasted revenue and EBITDA growth”.

Kew expects Avigilon’s revenue will climb to $260-million in fiscal 2014 and to $365-million the following year.

Shares of Avigilon closed today down 6.7% to $20.35.

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