Mitel is poised for a “meaningful valuation lift”, says Cormark

Cormark analyst Richard Tse says Mitel is set to benefit from an upgrade cycle in enterprise communications. Fresh off the acquisition of hometown peer Aastra, Mitel Networks (TSX:MNW) is poised for a “meaningful valuation lift”, says Cormark analyst Richard Tse.

On Thursday, prior to the market’s open, Mitel will report its Q1, 2014 results.

Mitel’s first quarter, Tse notes, will include just two months contribution from Aastra, which closed January 31st. Nonetheless, he believes the quarter will provide a valuable window into how the acquisition is going. He thinks the company will post EBITDA of (U.S.) $14.00-million on revenue of $243-million.

Tse says he sees two mutually exclusive drivers of Mitel shares. First, he says the company has a growing cloud business that is not yet priced into its stock. Second, he believes that the Aastra acquisition will drive more in cost synergies than the $50-million that management has guided.

The Cormark analyst notes that comparables such as RingCentral have been under pressure of late and that has likely dragged Mitel down, too. On the Nasdaq, the stock is off from its March highs of nearly eleven dollars. But Tse says the longer story is that Mitel is set to benefit from an upgrade cycle in enterprise communications and the pullback has only made its valuation more attractive.

In a research update to clients this morning, Tse maintained his “Top Pick” rating and (U.S.) $12.50 one-year target on Mitel.

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