Sierra Wireless shakeup will impact its pivot plans, National Bank says

Mobile equipment manufacturer Sierra Wireless Inc. (Sierra Wireless Stock Quote, Chart, News: TSX:SW, NASDAQ:SWIR) has announced the immediate departure of its President and CEO, a move which, while sensible in light of the company’s attempt to pivot beyond hardware, will nonetheless represent a hitch in the its plans, says Richard Tse of National Bank of Canada Financial.

In a Thursday note to clients, the analyst dropped his stock rating from “Outperform” to “Sector Perform” and lowered his target price from $32.00 to $22.00. (All figures in US dollars unless otherwise noted.)

Yesterday, Richmond, BC-based Sierra announced that President and CEO Jason Cohenour would be stepping down effective immediately and that the Chair of its Board of Directors, Kent Thexton, will serve as Interim CEO while the Board looks for a replacement. Director Greg Aasen has now been named Lead Independent Director of the Board.

“Thanks to Jason’s vision and leadership, Sierra successfully refocused its strategy and transitioned into a global leader in the IoT market,” said Aasen in a statement. “The Board will be taking this opportunity to recruit a world class leader to guide the Company through its next phase of growth and value creation.”

Tse says Sierra remains financially sound, with its core business and integration of recent addition Numerex proceeding in line with expectations. At the same time, the executive change will be noticeable.

“We believe it has the potential to create some pause pending a permanent CEO for the very reason that such a change commonly causes an operational pause, in our experience,” says Tse. “Given that, we think it also increases the risk rating and with that, our discount rate (in the interim), which explains our rating change to ‘Sector Perform.’”

The added risk impacts Tse’s discount rate and DCF-based target, dropping it to $22.00, which implies EV/Sales of 0.8x on his (unchanged) FY2019 estimate and represents a projected 12-month return on investment of 24 per cent at the time of publication.