Sandvine gets price target raise at Cormark

A quarter in which the company declared a surprise dividend has Cormark analyst Richard Tse feeling bullish about Sandvine (Sandvine Stock Quote, Chart, News: TSX:SVC).

Yesterday, Sandvine reported its fourth quarter and fiscal 2014 results. In the fourth quarter, the company earned $25.2-million on revenue of $35-million.

“I am pleased to end Sandvine’s year with record quarterly revenue and order intake, and strong annual income,” said CEO Dave Caputo. “We were able to close a number of significant orders, some of the revenue from which will carry forward into 2016. Today, we also announced plans to initiate the company’s first quarterly dividend. We are very pleased to be in a position to introduce this dividend program for shareholders while continuing to fully invest in our growth strategy.”

Tse says that while the Q4 numbers were in-line with previous company guidance, the dividend -a $0.0175 quarterly kicker the company says will not detract from M&A or its ability to buy back stocks- was the real surprise of the quarter. He says there are numerous other positives.

“Bottom line, we believe SVC is undervalued given its market leading position that’s buoyed by a large cash balance (also positive FCF) and see it as a potential takeout candidate,” says Tse. “With the broad range of sales initiatives, building momentum alongside a plateau in opex will flow toward the company’s bottom line through F2016. At 1.4x EV/S and 11.7x P/E (F2016E) – the risk-to-reward is compelling.

Tse thinks that with the continued growth of broadband traffic, service providers will increasingly to look at the types of products Sandvine offers, such as Deep Packet Inspection.

In a research update to clients today, Tse maintained his “Buy” rating on Sandvine but raised his one-year target price on the stock to $5.00, up a dollar from his previous target of $4.00.