PWFL stock is a buy, Roth says

Following the announcement of a new acquisition, Roth MKM analyst Scott Searle remains bullish on PowerFleet (PowerFleet Stock Quote, Chart, News, Analysts, Financials Nasdaq:PWFL).

On October 10, PowerFleet announced the acquisition of Mix Telematics to form what the company said would be “form one of the largest mobile asset Internet of Things (IoT) Software-as-a-Service (SaaS) providers in the world.

“By leveraging our proven SaaS strategy across the combined business, spearheaded by our Unity platform and data highway, we firmly believe we will be extremely well positioned to drive incremental market consolidation,” said PowerFleet CEO Steve Towe. “Realizing transformative scale, this transaction with MiX will provide the go-forward company with 1.7 million subscribers, and the ability to sell additive and accelerated AI and data-powered software solutions to a truly global set of customers. This combination is expected to achieve a number of strategic objectives including unlocking strong incremental value creation opportunities; a refinanced balance sheet for the combined company that will provide more flexibility to execute our strategic growth initiatives; and the ability to retain and attract an expanded portfolio of shareholders. Combining with MiX, an extremely well-run and profitable organization, will establish the combined entity as a world-class SaaS company, giving us the speed and capability to achieve improved growth in high quality recurring revenues and expanded profitability much sooner.”

The analyst gave the development a big thumbs up.

“This AM, PWFL announced they were acquiring MIXT in an all-stock deal, roughly 70M shares, or an 11% premium,” he said. “This translates to < 1x EV/24E sales or <4x EV/EBITDA. The CEO and CFO of the combined entity with be from Powerfleet. The transaction is expected to close in 1Q24. While the company is not providing detailed financial synergies, we expect the transaction to be EPS neutral by the end of year 1 (2024), with further cross-selling and cost synergies likely to drive further upside. The combined entity will be the #5 or #6 global operator of telematics services servicing approximately 1.7M connected vehicles, feature $279M of trailing twelve-month sales with 75% SaaS Mix and ~14% EBITDA margins ($39M). We believe the resulting scale accelerates Powerfleet’s global relevance and line of sight to a “rule of 40” company in a couple of years (40 = combined EBITDA margins and sales growth).”

In a research update to clients October 10, Searle maintained his “Buy” rating and twelve-month price target of $9.00 on PWFL.