The decision to cut its dividend has moved shares of Wi-LAN (TSX:WIN, Nasdaq:WILN) below what is reasonable and investors should be scooping up shares here, says Paradigm analyst Daniel Kim.
In a research update to clients today, Kim reiterated his “Buy” recommendation and one-year target price of $5.00 on Wi-LAN, implying a return of 261 per cent at the time of publication. The analyst says that while the patent industry is evolving and presenting new challenges, Wi-LAN has moved with it to create a modern patent player that boasts an indisputable record of creating value. He says the markets lack of ability to recognize this, at least in the short term, has created a clear opportunity for investors.
“WIN has matured into one of the industry’s most respected players and its track record speaks for itself,” says Kim. “The market, however, has a different view. This disparity has created a once-in-a-lifetime buying opportunity, in our opinion; therefore, we reiterate our Buy rating and C$5.00 target, based on 10x 2016e EPS. We note we have taken a very conservative view on our valuation multiple (half that of its peers) and forecast earnings, and see meaningful upside to both.”
Kin notes that Wi-LAN’s new model has diversified its risk and significantly lowered its operating costs. He notes that almost all the law firms that do work for the company do so on contingency and are only paid on a positive ruling. This, he notes, has meant a lowering in litigation expenses from a 2013 peak of $45-million to approximately $10-million a year going forward. He also points out that following the Qimonda and Freescale acquisitions Wi-LAN has more than 13,000 patents, a five-fold increase in just a single year.