Sierra Wireless Inc.: Does the Earnings-Induced Sell-Off Represent a Buying Opportunity?
Sierra Wireless Inc. (TSX:SW)(NASDAQ:SWIR), one of the world’s leading providers of intelligent wireless solutions, announced second-quarter earnings results after the market closed on August 6, and its stock responded by falling over 8% in the trading session that followed. Let’s take a closer look at the results to determine if a sell-off of this magnitude was warranted, or if it represents a long-term buying opportunity.
Acquisitions lead to record revenues
Here’s a summary of Sierra Wireless’s second-quarter earnings results compared with what analysts had anticipated and its results in the same period a year ago. All figures are in U.S. dollars.
|Adjusted Earnings Per Diluted Share||$0.26||$0.25||$0.08|
|Revenue||$157.97 million||$156.83 million||$135.01 million|
Source: Financial Times
Sierra Wireless’s adjusted earnings per diluted share increased 225% and its revenue increased 17% compared with the second quarter of fiscal 2014. Its very strong earnings-per-share growth can be attributed to its adjusted net income increasing 20.3% to $8.64 million, helped by a foreign exchange gain of $1.58 million.
The company’s record-setting revenue can be attributed to revenues increasing 18.5% to $138.13 million in its OEM Solutions segment, driven by growth in its automotive, transportation, energy, and enterprise networking sub-segments, as well as contributions from Maingate, which it acquired in the first quarter.
Here’s a quick breakdown of eight other notable statistics from the report compared with the year-ago period:
- Revenue increased 7.6% to $19.83 million in its Enterprise Solutions segment
- Adjusted gross profit increased 17.6% to $51.09 million
- Adjusted gross margin expanded 20 basis points to 32.4%
- Adjusted earnings before interest, taxes, depreciation, and amortization increased 93% to $13.15 million
- Adjusted earnings from operations increased 193% to $10.73 million
- Cash flows from operating activities increased 9% to $12.94 million
- Free cash flow decreased 4.6% to $8.68 million
- Ended the quarter with $96.47 million in cash and cash equivalents, a decrease of 3.1% from the beginning of the quarter
Sierra Wireless also provided its outlook on the third quarter of fiscal 2015. It is calling for the following results:
- Adjusted net income in the range of $7.5-9.0 million
- Adjusted earnings per share in the range of $0.23-0.27
- Revenue in the range of $157-160 million
- Earnings from operations in the range of $9.5-11.0 million
Should you buy or avoid Sierra Wireless today?
It was a great quarter for Sierra Wireless, and the results surpassed analysts’ expectations, so I do not think the post-earnings drop in its stock was warranted. With this being said, I think the decline represents a great long-term buying opportunity, especially because the stock now trades at very inexpensive forward valuations, including just 27.5 times fiscal 2015’s estimated earnings per share of $1.06 and only 20.2 times fiscal 2016’s estimated earnings per share of $1.44.
I think the company’s stock could consistently command a fair multiple of at least 30, which would place its shares upwards of $31.75 by the conclusion of fiscal 2015 and upwards of $43 by the conclusion of fiscal 2016, representing upside of more than 9% and 47%, respectively, from today’s levels.
With all of the information above in mind, I think Sierra Wireless represents one of the best investment opportunities in the tech sector. Foolish investors should take a closer look and strongly consider beginning to scale in to positions today.
This could end up being our top stock pick of all time...
Does your portfolio have rock-solid blue chips at its core? If it does... GREAT! If not, you might want to reconsider your strategy.
Either way, we think you should take a look at what our analysts have identified as one TOP stock for 2015 and beyond--a stock with a tollbooth-like business; a solid management team; and a reliable, consistent, and rising dividend--and you can download the name, ticker symbol, and price guidance absolutely FREE.
NEW! This Stock Could Be Like Buying Amazon In 1997
For only the 5th time in over 14 years, Motley Fool co-founder David Gardner just issued a Buy Recommendation on this recent Canadian IPO.
Stock Advisor Canada’s Chief Investment Adviser, Iain Butler, also recommended this company back in March – and it’s already up a whopping 57%!
Enter your email address below to claim your copy of this brand new report, “Breakthrough IPO Receives Rare Endorsement.”
Sierra Wireless Inc. (TSX:SW)(NASDAQ:SWIR), one of the world?s leading providers of intelligent wireless solutions, announced second-quarter earnings results after the market closed on August 6, and its stock responded by falling over 8% in the trading session that followed. Let?s take a closer look at the results to determine if a sell-off of this magnitude was warranted, or if it represents a long-term buying opportunity.
Acquisitions lead to record revenues
Here’s a summary of Sierra Wireless?s second-quarter earnings results compared with what analysts had anticipated and its results in the same period a year ago. All figures are in U.S. dollars.