Buy Sandvine on weakness, say Cormark analyst Tse

Sandvine CEO Dave Caputo. The revenue warning Sandvine (TSX:SVC) delivered to the market this week might remind some of the company’s struggles in 2011 and 2012 when there were larger structural issues at play, but this shortfall will prove to be minor, says Cormark analyst Richard Tse.

Yesterday, Sandvine issued a press release in which CEO Dave Caputo said the company expects Q3 revenue to fall somewhere between (U.S) $27.5-million and $28.0-million. Caputo said the culprit was a couple deals the company could not close within the quarter, but expects to finalize in Q4.

Tse notes that Sandvine’s new topline estimate fell below both his and the street consensus of $33-million. The analyst, however, says he doesn’t believe there is any change in Sandvine’s story. Instead, he believes the news is the simply part of the nature of the communication equipment business, where revenue can be lumpy. Tse thinks that given the resultant pullback in the company’s stock yesterday, investors should use the weakness as a buying opportunity.

In a research update to clients this morning, Tse reiterated his “Buy” rating and one-year target of $5.00 on Sandvine, implying a return of 67% at the time of publication.

Tse thinks there could be a silver lining to yesterday’s news in that the company’s sales capacity restraints may lead it to scale operating expenses in sales for 2015. He thinks this may help it capture additional revenue going forward.

Shares of Sandvine closed today up 3.3% to $3.10.