Shares of Redknee Solutions (TSX:RKN) have been sliding since last autumn, but one analyst thinks the stock is currently undervalued.
Clarus analyst Eyal Ofir yesterday upgraded his rating on Redknee to “Buy”. He previously rated the stock as a “Speculative Buy”. Ofir maintained his $6.75 one-year target price on the Mississauga-based company.
Ofir, noting that Redknee’s transformative acquisition of assets from Nokia Siemens Networks is now more than a year old, says the picture of the company that has emerged is now much clearer, and he believes this means execution risk has been reduced significantly.
In recent meetings with management, the Clarus analyst says he came away with more confidence that Redknee is better positioned to execute on upgrades and expand its margins. Management, he points out, believes the opportunity in upgrading its current install base is worth more than $200-million. Ofir expects at least one contract win of between $30-100 million by the end of this year.
Ofir notes that his target price implies a P/E multiple of 21.4x his 2015 numbers, a premium to a group of comparables that includes Amdocs, Convergys and Sandvine, which trade at an average P/E multiple of 17.3x. He says Redknee deserves this premium because of its unique opportunity to drive operating leverage and revenue growth.
At press time, shares of Redknee were up .7% to $5.73.