We upgrade our recommendation for Novatel Wireless Inc. (NVTL) to Outperform following huge international momentum for its innovative MiFi line of Products. We expect the top-line of Novatel to maintain its current growth rate supported by the strong demand for MiFi mobile intelligent hotspot and USB modems. The company has generated a record high level of free cash and also significantly improved its gross margin. Additionally, Novatel has a very strong balance sheet, capable of supporting its long-run business endeavors. Management has taken a decision to extend the MiFi platform with new features and functionality, as well as building a MiFi ecosystem through organic development and strategic partners.
Novatel continues to generate strong revenue driven by increased demand for its 3G wireless data access products. These products have received huge industry traction for their innovation, functionality, and technological importance. Several large telecom carriers are registering increased revenue from wireless data services as 3G networks become mainstream deployments. As a result, an enormous demand is evident for high-speed wireless data access products.
Novatel’s unique MiFi line of Intelligent Mobile Hotspots is now available on 15 global wireless service providers in 16 countries. MiFi is an ultra-portable wireless device, creating an environment of high-speed Internet connectivity that can be easily shared between multiple users and Wi-Fi devices. Novatel has developed MiFi for both EV-DO Rev A, HSPA, and WiMAX standards.
From a financial perspective, Novatel’s balance sheet remains firm, capable of sustaining near-term expenses. At the end of the third quarter 2009, the company had more than $5.55 per share of cash and cash equivalent and no material debt outstanding. At this run rate of cash generation, we believe Novatel will be able to withstand short-run revenue challenges due to the global macroeconomic weakness.
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