We reiterate our long-term Neutral recommendation on
Novatel Wireless Inc.
) as we believe the stock is currently fairly valued. The company
postedweak financial results for the fourth quarter of 2012. Both
earnings per share and total revenue fell much below the Zacks
Why Kept at Neutral?
The annualized downside in revenue was mainly due to a subdued
performance by the Mobile Computing Product segment. We do not
expect Novatel to achieve profitability any time soon.
Precipitous losses may jeopardize its healthy balance sheet going
forward. Competition from low-cost Asian manufacturers coupled
with a highly concentrated customer base are the other
Nevertheless, management is hopeful that the company's 4G MiFi
intelligent hotspots and Expedite embedded solution will get
meaningful market traction. Meanwhile, the stock price plummeted
41% in the last year and may provide a cushion for further
downslide.Novatel currently has a Zacks Rank #2 (Buy).
Risk/Reward Virtually Balanced
Novatel has launched its innovative touch screen MiFi 2
). The company is hopeful of launching this product with other
carriers in 2013. Recently, Verizon Wireless launched Novatel's
MiFi 4620 with an expanded battery backup. Verizon Wireless is a
joint venture between
Verizon Communications Inc.
Vodafone Group plc.
). Novatel also introduced a second variant of MiFi called MiFi
5510L with Verizon Wireless in the first quarter of 2013 which is
more cost effective.
On the other side, we anticipate gradually increasing
competition for Novatel's MiFi product line. Several latest
versions of smartphones have an inbuilt WiFi capability. Low-cost
Asian manufacturers, including ZTE and Huawei Technologies, have
already launched their own versions of intelligent mobile hot
spots putting competitive pressure on Novatel.Intensifying
competition for embedded modules is also a major concern for the
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