Novatel Wireless in Neutral Zone - Analyst Blog

Shutterstock photo

We reiterate our long-term Neutral recommendation on Novatel Wireless Inc. ( NVTL ) 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 Consensus Estimates.

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 headwinds.

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 product with AT&T Inc. ( T ). 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. ( VZ ) and Vodafone Group plc. ( VOD ). 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 company.

NOVATEL WIRELES (NVTL): Free Stock Analysis Report

AT&T INC (T): Free Stock Analysis Report

VODAFONE GP PLC (VOD): Free Stock Analysis Report

VERIZON COMM (VZ): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing , Business , Stocks
Referenced Symbols: T , VOD , VZ

More from Zacks.com




Equity Research

Research Brokers before you trade

Want to trade FX?