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Why Sierra Wireless, Inc. Is Falling Sharply

Sierra Wireless, Inc. (TSX:SW)(NASDAQ:SWIR), one of the world’s leading providers of fully integrated device-to-cloud solutions for the Internet of Things (IoT), announced its second-quarter earnings results after the market closed on Wednesday, and its stock reacted by making a sharp move to the downside in the extended-hours trading session. Let’s take a closer look at the quarterly results, its outlook on the third quarter, and the fundamentals of its stock to determine if we should consider using this weakness as a long-term buying opportunity.

A solid quarter of top- and bottom-line growth

Here’s a quick breakdown of 10 of the most notable financial statistics from Sierra Wireless’s three-month period ended on June 30, 2017, compared with the same period in 2016:

Metric Q2 2017 Q2 2016 Change
OEM Solutions revenues US$144.56 million US$132.67 million 9%
Enterprise Solutions revenues US$21.66 million US$16.58 million 30.7%
Cloud & Connectivity Services revenues US$7.29 million US$6.99 million 4.3%
Total revenues US$173.51 million US$156.23 million 11.1%
Adjusted gross profit US$58.81 million US$55.77 million 7.2%
Adjusted gross margin 34.5% 33.8% 70 basis points
Adjusted EBITDA US$14.8 million US$12.08 million 22.5%
Adjusted earnings from operations US$11.3 million US$8.43 million 34%
Adjusted net earnings US$9.69 million US$6.38 million 52%
Adjusted earnings per share (EPS) US$0.30 US$0.20 50%

Outlook on the third quarter  

In the press release, Sierra Wireless provided its outlook on the third quarter, calling for revenues in the range of US$167-175 million and adjusted EPS in the range of US$0.17-0.25.

Should you buy Sierra Wireless on the dip?

It was a solid quarter overall for Sierra Wireless, and the results surpassed the consensus estimates of analysts polled by Thomson Reuters, which called for adjusted EPS of US$0.28 on revenue of US$170.27 million. Furthermore, its outlook on the third quarter came in line with analysts’ expectations, which currently call for adjusted EPS of US$0.24 on revenue of US$170.33 million.

Immediately following the earnings release, Sierra Wireless announced its acquisition of Numerex Corp. for approximately US$107 million. Sierra Wireless noted that this acquisition “accelerates our IoT device-to-cloud strategy by adding an established customer base, significant sales capacity, proven solutions, and recurring revenue scale.”

To summarize Sierra Wireless’s two press releases, the company beat second-quarter earnings expectations, provided guidance for the third quarter that was in line with expectations, and it announced a strategic acquisition of another leading provider of managed enterprise solutions that enables the IoT; I think all of these are positives for the company, so I do not think the sharp decline in its stock is warranted. Furthermore, the stock now trades at less than 27 times fiscal 2017’s estimated EPS of US$1.02 and less than 23 times fiscal 2018’s estimated EPS of US$1.18, both of which are inexpensive given its current earnings-growth rate and its estimated 13.1% long-term growth rate.

With all of the information provided above in mind, I think Foolish investors should strongly consider using the post-earnings weakness in Sierra Wireless to begin scaling in to long-term positions.

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Fool contributor Joseph Solitro has no position in any stocks mentioned. David Gardner owns shares of Sierra Wireless. The Motley Fool owns shares of Sierra Wireless.

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