Sierra Wireless has price target cut at National Bank Financial

Following the company’s fourth quarter results, National Bank Financial analyst Richard Tse has cut his price target on Sierra Wireless (Sierra Wireless Stock Quote, Chart, News Nasdaq:SWIR).

On Thursday, Sierra Wireless reported it Q4 and fiscal 2019 results. In the fourth quarter, the company posted Adjusted EBITDA of $2.3-million on revenue of $174.3-million, a topline that was down 13.5 per cent over the same period last year.

“We announced just over a year ago our strategy to transform from a hardware-focused IoT company to delivering full IoT solutions with recurring revenue attached to our market leading IoT devices. In 2019, we made tremendous progress and delivered on our plan with $99.1 million in recurring and other services revenue,” CEO Kent Thexton said. “And more importantly, we achieved record design win success with over $90 million of future recurring revenue from hundreds of new accounts. We launched market leading IoT solutions like our Octave product, increased our IoT connections by more than 400,000 and ended 2019 with 3.6 million global connections. We are seeing strong customer demand for our bundled solutions and increasing design wins in the growing IoT market.”

Tse said that not only was the a fourth quarter of mixed results, the company’s guidance was soft.

“Sierra Wireless reported what we consider to be mixed Q4 2019 results,” the analyst said. “And while the Company is pivoting its efforts to growth with IoT, that segment actually declined to -5% this quarter from -2% in Q3. In terms of profitability, adj. EBITDA for Q4 came in at $2.3 mln, below the implied guidance of $4.8 mln given last quarter, care of unfavourable product mix and one-offs. When it comes to the F20 outlook, Sierra’s (midpoint) guidance implies an annual decline of 4% (excluding the acquisition of M2M, ~$18 mln in revenue) and continued margin compression of 120 bps to ~1.8% (from $21 mln in F19 to $10-$15 mln in F20). The bottom line is this – while the Company still has a long-term goal of achieving $200 mln in recurring revenue by 2022 and $400 mln by 2024, it’s way too early to ascribe any value to those targets given the lack of history despite some positive commentary on the pipeline. And by the
way, the numbers are still declining in 2020. ”

In a research update to clients today, Tse maintained his “Sector Perform” rating on Sierra Wireless but lowered his one-year price target on the stock from (US) $11.00 to $$10.00, which implied a return of five cent at the time of publication.

Tse thinks Sierra Wireless will post EBITDA of (All figures USD) $10.9-million on revenue of $690.9-million in fiscal 2020. He expects those numbers will improve to EBITDA of $12.6-million on a topline of $707.3-million the following year.