We upgrade our recommendation for Novatel Wireless Inc. (NVTL) to Neutral based on valuation. The stock has fallen more than 55% in the last year and is trading at near 52-week lows. We think downside is limited from current levels.
Novatel’s first quarter financial results were better than the Zacks Consensus Estimates. Despite the lack of any near-term catalysts, we remain positive regarding the company’s long-term growth prospects and financial health. Novatel’s balance sheet remains extremely sound. At the end of the first quarter, the company had nearly $5.92 per share of net cash, which should provide a nice cushion for volatile revenues in the short term.
Novatel is likely to benefit from increased demand for 3G wireless data access products. Several large telecom carriers are experiencing higher revenue from wireless data services as 3G networks go mainstream and demand grows for 3G.
Novatel’s unique MiFi line of Intelligent Mobile Hotspots generated 47% of total revenue in the first quarter. The company is currently in the certification process for its first MiFi open development platform. The release of will enable software developers to use open CGI to access the on-board processing capabilities of MiFi.
Additionally, Novatel has decided to introduce next-generation (4G) enabled devices. These devices will support dual carrier HSPA+, WiMAX, and LTE. Management announced that it has already won a design contract for LTE enabled-product from a Tier 1 manufacturer. All these products are expected to be introduced in late 2010 and may help the company to expend its margins in 2011.
Read the full analyst report on “NVTL”
Zacks Investment Research
