Haywood raises price target on Avigilon to $25.00

A new focus on profitability and some concrete evidence that it is already working have Haywood analyst Pardeep Sangha feeling bullish about Avigilon (Avigilon Stock Quote, Chart, News: TSX:AVO).

Yesterday, Avigilon reported its Q4 and fiscal 2016 results. In the fourth quarter, the company posted Adjusted EBITDA of (U.S.) $20.8-million on revenue of $102.2-million, a topline that was up from the $81.4-million in revenue the company posted in last year’s fourth quarter.

“Once again, we’ve set new quarterly and annual records for revenue and gross profit while generating record cash flow from operations,” said CEO Alexander Fernandes. “We have a robust pipeline of groundbreaking new products and video analytics launching this year and global demand for our solutions is stronger than ever.”

Sangha notes that Avigilon’s Q4 revenue was in-line with the street consensus, but the company’s Adjusted EBITDA number was much higher than the consensus of $16.2-million. He says Avigilon focused on improving profitability in the fourth quarter, pointing to operating expenses that declined 8.1 per cent from the third quarter. The analyst says he thinks there is a lot of upside in the Vancouver-based security player.

“We believe Avigilon is undervalued,” says Sangha. “Avigilon is currently trading at 8.4x EV/EBITDA of our CY17 estimates, which is below the peer group average of 12.2x EV/EBITDA of CY17 consensus estimates. Our target price represents a 12.5x EV/EBITDA multiple of our FY17 Adjusted EBITDA estimate, or 9.8x EV/EBITDA multiple of our FY18 Adjusted EBITDA estimate.”

In a research update to clients today, Sangha maintained his “Buy” rating on Avigilon, but raised his one-year price target on the stock from $20.00 to $25.00, implying a return of 66.1 per cent at the time of publication.

“We increased our target price from (C) $20.00 to C$25.00 due to the strong Q4 results, positive outlook, increased forecast and higher profitability going forward,” Sangha says.

Sangha thinks Avigilon will post Adjusted EBITDA of (US) $70.9-million on revenue of $420.6-million in fiscal 2017. He expects these numbers will improve to EBITDA of $90.8-million on a topline of $480.9-million the following year.

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