Updated Research Report on Novatel - Analyst Blog
March 17 2014 - 10:56AM
Zacks
On Mar 14, 2014, we issued an updated research report on
Novatel Wireless Inc. (NVTL). Increased
competition, higher operating expenses and a weaker outlook for the
upcoming quarter has resulted in such poor performance for the
company.
Except for one quarter Novatel has delivered negative earnings
surprise in the remaining three quarters last year, with an average
miss of 6.19%. The company reported poor financial results for the
fourth quarter of fiscal 2013 with both the top and the bottom line
missing the respective Zacks Consensus Estimate. Increased
competition, higher operating expenses and a weaker outlook for the
upcoming quarter led to the dismal performance.
Increased demand for mobile broadband will help Novatel going
forward. The company currently serves the three large wireless
operators in the U.S., namely, Verizon Communication
Inc. (VZ), AT&T Inc. (T) and
Sprint Corp. (S) Verizon has launched MiFi 4620 LE
with an extended battery pack. Moreover, cost saving initiatives
like downsizing workforce and cutting operating expenses by 31% and
34%, respectively, are expected to boost margins.
Recently, the company entered into an agreement with Vehicle
Tracking Systems (VTS), a popular fleet management system operator,
to supply MT 4100 and MT 3050 devices to support the VTS Silent
Passenger application. The deal will also facilitate VTS’ migration
from GPRS to CDMA technology.
Novatel has won a contract with Teleges, one of the leading
commercial vehicle telematics service providers. Novatel is
deploying its popular SA2100 telematics device with Teleges’ fleet
management location provider. The company also struck a deal with
DigiCore Holdings Ltd., a leading provider of advanced
machine-to-machine (M2M) communication and telematics solutions, to
supply various versions of Novatel Wireless’ advanced MT 3060 OBDII
technology. Hence, striking deal with two top telematics service
providers will certainly drive Novatel’s Commercial telematics
business.
However, we anticipate increasing competition for Novatel’s MiFi
product line. Several latest versions of smartphones have inbuilt
WiFi capability. Low-cost Asian manufacturers, including ZTE and
Huawei Technologies, have already launched their own version of
intelligent mobile hot spots creating competitive pressure on
Novatel.
Novatel’s business depends on a limited number of customers, who
represent a significant portion of the company’s total revenue.
Loss of any of these customers will adversely affect the company’s
business model. Moreover, the company’s business is less
diversified geographically as North America accounts for nearly 97%
of its total revenue.
Novatel currently carries a Zacks Rank #4 (Sell).
NOVATEL WIRELES (NVTL): Free Stock Analysis Report
SPRINT CORP (S): Free Stock Analysis Report
AT&T INC (T): Free Stock Analysis Report
VERIZON COMM (VZ): Free Stock Analysis Report
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