ORBCOMM Buy Target Price $9

ORBC : NASDAQ : US$6.60
BUY 
Target: US$9.00

COMPANY DESCRIPTION:
ORBCOMM is a leading provider of global machine-to-machine (M2M) solutions and the only commercial satellite network 100% dedicated to M2M.
All amounts in unless otherwise noted.

Technology — Communications Technology — Wireless Equipment
UTILIZING SATELLITE ASSETS TO TRANSITION TO LEADING END-TO-END M2M SERVICES COMPANY; INITIATE WITH BUY AND $9 PT

Investment recommendation:

We believe ORBCOMM is successfully transitioning from a satellite services provider to a leading end-to-end solutions provider for the machine to machine (“M2M”) or Internet of Things (“IOT”) market. In fact, we believe recent customer wins with Hub Group, Ryder, and Doosan not only provide ORBCOMM with roughly $80M to $100M in sales visibility over the next several years, but these deals also demonstrate ORBCOMM’s strong end-to-end solutions for several leading M2M vertical markets. With ORBCOMM’s planned launch of its new satellite network OG2, combined with its partnerships with Inmarsat and Globalstar, we believe the company’s improved network coverage and increased network bandwidth enhance its end-to-end solutions offering and position the company to build on its M2M solutions deal momentum. While investments to grow its M2M services platforms have limited 2012 and 2013 adjusted EBITDA growth, we believe recent deal wins will result in adjusted EBITDA growth returning in 2014 with accelerating growth in 2015 and beyond. We initiate coverage with a BUY rating and $9 price target.
Investment highlights
 We believe ORBCOMM’s transition over the past couple years to an end-to-end solutions provider for leading M2M vertical markets is underappreciated by investors. In fact, we believe ORBCOMM is entering an inflection point in its financial model as the transformation to a greater mix of managed services positions the company for improving ARPU trends, accelerating sales growth, and strong growth in adjusted EBITDA or operating cash flow over the next several years.
 While the OG2 launch could prove more difficult with additional costs or potential delays versus our expectations, we believe the launch of its new satellite network combined with partnership deals with Inmarsat and Globalstar improve ORBCOMM’s network coverage and bandwidth to enhance its M2M solutions offering.
 We are introducing our 2013 estimates for revenue of $74.2M and adjusted EBITDA of $16.3M, 2014 estimates of $86.2M and $19.7M, and 2015 estimates of $101.3M and $27.7M.
Valuation: Our $9 price target is based on shares trading at a multiple of roughly 15x EV/adjusted EBITDA based on our 2015 estimates.

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