Some frank talk has been issued from Roth Capital Partners analyst Scott W. Searle on Sequans Communications (Sequans Communications Stock Quote, Charts, News, Analysts, Financials NYSE:SQNS). In an update to clients on Wednesday, Searle said the semiconductor solutions company has a ways to go to gain back investor confidence, but for those of us looking for an excellent play in the semi sector, Sequans should be front and centre.
A provider of single-mode LTE and 5G multi-mode solutions targeting the broadband and IoT markets, Sequans has watched its share price tumble over the past two years, going from above $8 per share in early 2021 to now just above the $2 level and effectively flirting with lows not seen in half a decade.
The company posted quarterly earnings last month that featured a year-over-year drop in revenue, with delays in project launches and customer inventory rationalization impacting the first quarter 2023 topline, according to management. The company also guided for second quarter revenue to be lower on a year-over-year basis, although business is expected to pick up over the second half of the year.
But for Searle, there are a number of ways in which the road ahead looks better than one might think.
The analyst argued that design activity remains at elevated levels for the company and he said Sequans is on track to exit 2023 with over $150 million of annualized Product design wins, up from the last reported figure of $100 million.
Also on track, according to Searle, is Sequans’ Taurus 5G product, which the analyst argues will set it apart from traditional baseband competition in the likes of Qualcomm and Mediatek. Searle estimates that this revenue path should translate into sales of over $100 million by 2026.
Altogether, the analyst has forecasted Sequans’ revenue to go from $52.5 million in 2023 to $94.3 million in 2024 and to $167.4 million in 2024, while EPS is expected to run from negative $0.33 per share in 2023 to positive $0.03 in 2024 and to positive $0.54 per share in 2025. (All figures in US dollars.)
“Given its unique position in IoT and 5G basebands, we believe that SQNS should conservatively be valued in excess of 4-5x sales given recent M&A and public comps,” Searle wrote.
“Yes, the company needs to re-establish credibility with sustained performance (in-line results and Product sales growth), but the market valuation continues to meaningfully misrepresent the core technology value, in our opinion. We believe that as Sequans successfully tapes out its 5G Taurus solutions, demonstrates sequential Product growth in 2H23 and has favourable funding resolution (French gov, European CHIPs Act, etc.), that the market will more appropriately value SQNS,” he said.
With the update, Searle maintained a “Buy” rating on Sequans Communications and 12-month target of $9.75, which at the time of publication represented a projected return of 353 per cent.
“We remain aggressive buyers and believe that SQNS is one of the most uniquely positioned small-cap semi names over the past two decades,” Searle wrote.