Cormark raises target on Mitel to (US) $16.00, maintains “Top Pick” rating

Cormark analyst Richard Tse thinks the potential of Mitel’s cloud business remains under-appreciated. It’s go time for Mitel (TSX:MNW, NASDAQ:MITL), says Cormark analyst Richard Tse.

Last Thursday, Mitel reported its Q1, 2014 numbers. The company lost (US) $13.6-million on revenue of $241.5-million, a topline that was up 69% over last year. The newly acquired Aastra Technologies, which was part of Mitel for just two months after the pickup was completed on January 31st, contributed $89.3-million in revenue. Much of the loss was due to restructuring charges; adjusted EBITDA came in at $35.6-million.

Tse, noting that management increased its synergy target from $50-million to $75-million, says the integration of Aastra is ahead of schedule. He thinks this fact, coupled with the under-appreciated potential of Mitel’s cloud business, means the company’s stock remains undervalued. In a research update to clients Friday, Tse maintained his Top Pick rating on Mitel, but raised his one-year target price on the stock from (US) $12.50 to $16.00.

The Cormark analyst says that with a legacy subscriber base of more than 60-million, Mitel has plenty of runway to move these customers to the cloud. He notes that the company has a direct sales model that is complemented by a wide range of cloud products sold through VARs and service providers, so the path to market is clear.

Tse believes Mitel will earn $1.04 a share on revenue of $1.15-billion in fiscal 2014, and expects that number will climb to $1.51 a share on a topline of $1.25-billion the following year.

At press time, shares of Mitel on the Nasdaq were up 7.76% to $11.67.

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