Sierra Wireless is a wait-and-see stock, National Bank says

Better things may be on the horizon for Sierra Wireless (Sierra Wireless Stock Quote, Chart TSX:SW, Nasdaq:SWIR), but National Bank Financial analyst Richard Tse says hold off for a bit.

On Thursday, Sierra Wireless reported its Q1, 2019 results. The company lost (U.S.) $11.22-million on revenue of $173.8-million, a topline that was down seven per cent from the $186.8-million the company posted in the same period a year prior.

“We are making good progress driving improved efficiency throughout our operations to accelerate our transformation into a leading global IoT solutions provider,” CEO Kent Thexton said. “At the same time, we are investing in innovative cellular technologies and capabilities to enhance our differentiated Device-To-Cloud offering and grow our recurring subscription-based revenue.”

Tse says these results were in-line to slightly better than he had expected. He says it is best to hold off and see how Sierra Wireless is doing next year.

“As part of the Company’s regrouping of segments, Sierra stopped providing quarterly guidance. Instead, it will only offer full year guidance,” the analyst notes. “Subsequent to the quarter, Sierra announced additional cost savings that will include (1) optimizing its R&D to lower cost regions by consolidating its team in Paris to Canada and Asia; and (2) administrative efficiencies, through outsourcing. No doubt, the Company is on a mission to be leaner – perhaps to scale margins or perhaps to preserve margins in a competitive price environment. Regardless, Sierra has set sites on $1 bln in sales in the next three to four years, with IoT Solutions representing 60% of the mix with 30% tied to recurring revenue. Those following our research will know we’re positive on this pivot as we’ve called on Sierra to take such a course in the past. For now, there are a lot of moving parts and we won’t be able to assess the execution until 2020.

In a research update to clients today, Tse maintained his “Sector Perform” rating on Sierra Wireless, but raised his one-year price target on the stock from (U.S.) $12.00 to $15.00, implying a return of 15 per cent at the time of publication.

Tse thinks SWIR will post EBITDA of (U.S.) $35.2-million on revenue of $793.6-million in fiscal 2019. He expects those numbers will improve to EBITDA of $45.2-million on a topline of $855.7-million the following year.