We reiterate our long-term Neutral recommendation on
Novatel Wireless Inc.
) as we believe that the stock is currently fairly valued. The
company posted mixed financial results for the first quarter of
2013. While the total revenue was ahead of the Zacks Consensus
Estimate, quarterly earnings were below the same.
Why Kept at Neutral?
Revenues declined on an annualized basis, which was mainly
attributable to subdued performance in the Mobile Computing
Product segment. We do not expect Novatel to achieve profit any
time soon. Continuous losses may jeopardize its healthy balance
sheet, going forward. Moreover, a highly concentrated customer
base is another headwind for the company.
Nevertheless, management is hopeful that the company's 4G MiFi
intelligent hotspots and Expedite embedded solution will achieve
meaningful market traction, going forward. The company also
expects order backlog for its MiFi 2 to remain strong in the
second quarter of 2013. Novatel currently has a Zacks
Rank #2 (Buy).
Risk/Reward Virtually Balanced
Novatel has launched its innovative touchscreen MiFi 2 product
). The company also launched the MiFi 2 with Canada's largest LTE
service provider, Bell Canada. Novatel also plans to launch the
next generation Wi-Fi hotspot with
Sprint Nextel Corp.
) during the second half of 2013. Recently, Verizon Wireless, a
Verizon Communications Inc.
), launched Novatel's MiFi 4620 with an expanded battery backup.
Novatel further introduced a second variant of MiFi called MiFi
5510L with Verizon Wireless in the first quarter of 2013, which
is more cost effective.
However, we anticipate a gradual increase in 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. This is exerting competitive pressure on Novatel.
Intensifying competition for embedded modules is also a major
concern for the company.
NOVATEL WIRELES (NVTL): Free Stock Analysis
SPRINT NEXTEL (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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