CalAmp Raising Target Price to $30

CAMP : NASDAQ : US$18.69
Target: US$30.00


CalAmp supplies tightly integrated M2M hardware with its COLT M2M Application Enablement Platform (AEP) cloud to add cellular and GPS connectivity solutions into several M2M verticals including: fleet management, asset/trailer tracking, vehicle finance/recovery/remote start, rail, and smart energy. In its legacy business, CalAmp supplies outdoor  reception/amplification and indoor network products for DBS satellite TV applications
All amounts in US$ unless otherwise noted.

Technology — Communications Technology — Wireless Equipment
Investment recommendation: CalAmp delivered strong results with Q2/F2014 pro forma EPS of $0.19 well above our $0.16 estimate. We believe the Wireless Matrix acquisition combined with the strong pipeline for CalAmp’s higher-margin Wireless DataCom business position CalAmp to grow faster than our 16% M2M hardware market revenue CAGR forecast. In fact, we believe CalAmp’s Wireless DataCom business is well positioned to drive re-accelerating 2H/F2014 and F2015 sales and earnings growth driven by new usage-based auto insurance contracts ramping in 2H/F2014, growing international sales, ramping sales from new deals with Caterpillar starting in Q1/F2015 and Pepco Holdings in 2H/F2014, and anticipated steady growth of higher-margin Wireless Matrix sales. We maintain our BUY rating and increase our price target to $30. CalAmp remains our top small-cap pick.
Investment highlights
 CalAmp’s higher-margin Wireless DataCom division’s Q2/F2014 sales of $47.2M grew an impressive 38% year-over-year including a full quarter of Wireless Matrix sales. Satellite division sales of $11.6M declined slightly sequentially from $12.9M in Q4/F2013, but gross margin of 19.6% was above our 18% estimate driven by a favorable product mix.
 Consistent with our positive investment thesis that several growth drivers would drive improving 2H/F2104 results, CalAmp’s Q3/F2014 guidance for sales of $61M at the mid-point was above our $59.8M estimate and pro-forma EPS guidance of $0.19-0.23 was in line with our $0.21 estimate.
 Given the strong Q2/F2014 results and our belief multiple long-term growth drivers remain intact, we increase our F2014 pro-forma EPS estimate from $0.78 to $0.81, F2015 from $1.02 to $1.04, and introduce our F2016 estimate of $1.20.
Valuation: Our $30 price target is based on shares trading at roughly 25x our F2016 pro forma EPS estimate.


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