ViXS faces headwinds but has upside, says Euro Pacific Canada

Euro Pacific analyst Andrej Krneta struck a cautious tone in his initaition report on ViXS Systems (TSX:VXS) today.

Krneta initiated coverage of ViXS with a “Buy” rating and one year target of $1.30, implying a return of 18% at the time of publication. But the analyst warned that the company may still face some difficulty in the days to come.

“Recently revised (post the warning of softer F2016e growth) consensus estimates may not see the full extent of near-term headwinds,” he said. “To us, the downside of pricing pressures and product launch delays at customers is understated. The conservative $1.30 price target (18% upside) factors in the near-term caution. Our Buy rating reflects the potentially transformative impact of prospective Cable TV wins.”

Krneta notes that ViXS has warned about a slow start to the fiscal year. Compiling that, a product introduction delay at one customer has pushed some volumes to 2016.

But the analyst says he sees longer term winds ultimately settling at ViXS Systems’ back. He thinks there is medium-term revenue growth potential from the company’s design win momentum and from increasing demand for next-generation video processing solutions. He sees Cable TV wins on set-top-boxes as a source of sustainable revenue growth.

Krneta says because ViXS is losing money, the company is priced below every one of its peers. But he says its current valuation does not reflect the company’s emerging operating leverage.