Buy Sierra Wireless to win in the connected car space, says Paradigm Capital

Paradigm Capital analyst Daniel Kim says Sierra Wireless (TSX:SW, Nasdaq:SWIR) is making hay in the connected car space.
Yesterday, Sierra Wireless announced that Russian company Itelma had selected it to enable cellular connectivity and service delivery for its emergency response ERA-GLONASS units supplied to the Russian automotive market.
“Sierra Wireless provides us with a leading-edge automotive connectivity solution that is reliable and scales easily,” said Alexander Sokolov, Deputy Director of Development at Itelma. “They are providing us with a fully automotive-grade module, as well as a device and connectivity management platform. This complete solution supports our vision of developing innovative technologies for connected cars and services in the future.”
Kim notes that this deal comes on the heels of two others, a win with China-based Pateo, and a a $200-million contract from an unnamed auto OEM with production beginning 2018. The analyst says Sierra Wireless is becoming a leader in the connected car space.
“This deal could be a landmark case for SWIR, given it is getting in on the ground floor for GLONASS implementation in Russia and the EU,” says the analyst. “At $30 ASP, this implies a blue sky of $30M/year (not including AvtoVAZ’s expanding market share). With auto representing 15–20% of SWIR’s revenue, this remains one of its largest growth drivers. However, the market continues to largely ignore the long-term growth profile benefit from connected cars, creating a compelling buying opportunity in our opinion.”
In a research update to clients today, Kim maintained his “Buy” rating and one-year price target of (U.S) $22.00 on Sierra Wireless, implying a return of 56 per cent at the time of publication.
Kim thinks Sierra Wireless will post EBITDA of $33.1-million on revenue of $618.6-million in fiscal 2016, numbers he expects will rise to EBITDA of $53.8-million on revenue of $694.6-million the following year.