Sandvine weakness is buying opportunity, says M Partners

The growth of data traffic makes it “imperative” for the service providers to upgrade their networks management capabilities and is a positive long-term trend for Sandvine (Sandvine Stock Quote, Chart, News: TSX:SVC), says M Partners analyst Manish Grigo.

This morning, Sandvine reported its Q3, 2014 results. The company earned $3.1-million on revenue of $27.9-million, in line with its lower guidance numbers. Shares of Sandvine slipped after it issued a September 9th press release in which CEO Dave Caputo said the company expects Q3 revenue would 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.

Today, Caputo offered a little more insight into one of those deals.

“This is our eighth consecutive quarter of year-over-year revenue growth and profitability, and our 2014 earnings growth has been strong,” he said. “I am also pleased that we recently won one of the larger opportunities that we had originally anticipated closing in the third quarter.”

Grigo notes that IBM, which is a reseller of Ssandvine products, accounted for more than 10% of sales for the quarter. The analyst says this is important to note because large integrators use only best-of-breed products to sell to their end users. He also points out that despite that fact that it is extremely difficult to win business in Sandvine’s space, the company was successful in displacing one of its competitors in winning the business of an unnamed cable operator.

The analyst says Sandvine’s wireless growth is impressive. He notes that the company’s revenue from this segment was $57-million, up 42% from the $38-million it derived from wireless in last year’s third quarter.

In a research update to clients this morning, Grigo maintained his “Buy” rating and one-year price target of (C) $4.50 on Sandvine, implying a return of 70.5% at the time of publication.

“We believe the drop in share price should be used as a buying opportunity into a high growth story with solid fundamentals,” said the analyst.

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