xG Technology Inc (NASDAQ:XGTI) shares rose 3% yesterday and continue to surge 9% in early trading Friday, a solid recovery after the tech firm stumbled 10% on Wednesday on back of a third quarter miss on revenue.
Maxim analyst Brian Kinstlinger points to “sales of new products hurt by supplier delays” and already notes he angles for a recovery in the fourth quarter with growth to hit next year.
Therefore, even on back of an unimpressive third quarter, the analyst reiterates a Buy rating on XGTI stock with a price target of $4, which represents a close to 125% increase from current levels. (To watch Kinstlinger’s track record, click here)
In the third quarter, even with “substantial” new product pre-orders at play, these delays in key components being received caused $2 million worth in orders that failed to be shipped. For this reason, XGTI ended up posted revenue that fell short to the harsh tune of $4 million under the analyst’s expectations with a result of $10.2 million for the quarter.
Yet, the analyst notes the XGTI team forecasts roughly $20 million in revenue for the fourth quarter, which to Kinstlinger spells out “evidence that demand remains solid despite a poor 3Q17.” Keep in mind, the analyst adds, the company already showcases $17 million in visibility for the fourth quarter just through orders and backlog, so look out for a “surge in revenue.” Notwithstanding a one-time item, gross margin hit a “record” 60% on back of “solid” product mix. That said, with a stark revenue shortcoming, XGTI experienced a $5.5 million operating loss with a loss of $4.4 million in adjusted EBITDA. “We believe a gross margin of about 50% is sustainable, though some quarters may be higher or lower,” writes the analyst.
Because of the delay in product shipments, XGTI ended up closing the third quarter with $8 million worth of backlog, about $2 million more than in the quarter before, and quite a bit more than the $3.5 million seen in its first quarter of the year. This week, the XGTI team has boosted that backlog up another $2 million to a total $10 million.
“The company has a fourth quarter pipeline for another $5 million of which 60% would be necessary to be ordered and shipped to achieve its $20 million revenue guidance,” highlights Kinstlinger, who closes on a bullish assertion: “The point is whether 4Q17 is a modest shortfall or beat, demand remains solid despite order delays in 3Q17. The company also has one large Army RFP, where it was the only vendor that responded, and about $1 million related-inventory.”
Glancing ahead, the analyst anticipates new satellite products for XGTI’s Ka band as well as upgraded band products coupled with the new MicroLite 2 camera will all act as growth drivers starting in the fourth quarter.
Ultimately, “We expect share gains in the company’s satellite transmission technology business to be a key growth driver,” as the analyst simultaneously sizes up XGTI’s competitors to have “underdeveloped” communications businesses, setting up a path for meaningful growth for this tech firm.
Early word on the tech stock rings bullish, right there along with Kinstlinger. According to TipRanks, based on 3 analysts polled in the last 12 months, all 3 rate a Buy on xG Technology stock. The 12-month average price target stands at $3.83, marking a 115% upside from where the stock is currently trading.