CalAmp: Leveraging Strength In Hardware Will Create An Attractive Entry Point For Investors, Says William Blair
In a research report released yesterday, William Blair analyst Jonathan Ho initiated coverage on CalAmp (CAMP) with an Outperform rating. No price target was assigned.
The following bullets contain some highlights from that call:
- We believe investors should view CalAmp as a broad play on the initial set of vertical markets that leverage M2M technology. The company’s modular solutions allow customers to quickly build M2M solutions from end to end, encompassing hardware, sensors, connectivity, and applications. Each of the vertical markets in which CalAmp participates has tremendous potential to grow and is in the early stages of adoption, in our opinion. Growth opportunities in areas such as usage-based insurance, leet management, asset tracking, and smart metering all represent enormous end-markets for which the company can supply its solutions.
- We believe CalAmp’s competitive differentiation is derived from its proven track record in delivering complex solutions and expertise in various vertical markets. Relative to its historical background as a component supplier to digital broadcast satellite services, the company has undergone a signiicant transformation to speciically target the evolving M2M space.
- We believe the risk/reward proile for buying CalAmp is attractive, as the broader market for M2M/IoT solutions continues to evolve and as the company continues to gain market share. We are encouraged by the company’s broader transition to a software, platform, and services focus, which we believe should lift operating margins over time.
- We believe CalAmp has an attractive growth opportunity tied to the rapid growth trends of the M2M/IoT market. We believe the company can sustain mid- to upper-teens top-line growth over the next several years, based on a number of growth drivers. While the company is not expected to generate top-line growth at these levels in iscal 2015, this is primarily a result of the impact of the company’s legacy DBS business, which is expected to decline by 20% in iscal 2015 and then remain relatively stable. Management expects its wireless products and services business (which comprise the company’s wireless datacom segment) should grow at a mid- to upper-teens level. In our view, growth will primarily be driven by increasing market share, new product opportunities, channel distribution expansion, and geographic expansion.
- Trading at a calendar 2015 price-to-earnings multiple of about 15.5 times and price-to-free-cash-ϐlow multiple of about 17.5 times,the stock is priced at a discount to our weighted benchmark group of M2M, telematics, and satellite providers. The stock has pulled back recently, based on disappointing February-quarter results and guidance after May-quarter results. However, our long-term thesis calls for the company to leverage its strength in hardware to expand its opportunities into software/services and solutions in the M2M space, creatingwhat we view as an attractive entry point for investors.
According to TipRanks.com, which measures analysts and bloggers success rate based on how their calls perform, analyst Jonathan Ho currently has a one-year average return of -3.3% and a 43% success rate. Ho is ranked #2707 out of 3215 analysts.