NVTL

[la-onda]

just for the record:
NVTL: To Release Q1 Results May 01 [AMC]
Tuesday , May 01, 2007 08:30ET

Novatel Wireless Inc (Nasdaq NM: NVTL) is scheduled to release its Q1 financial results on May 01, 2007, after the close of the market (AMC).

CONSENSUS ESTIMATES:

Q1 Revenue: $101.83 million
Q1 EPS: $0.35 per share

PREVIOUS PERIOD:

Prev Q1 Revenue: $40.16 million
Prev Q1 EPS: $-0.02 per share

[buddjas1]

Well, here we go again.

http://biz.yahoo.com/bw/070501/20070501006486.html?.v=1

Tomorrow will be interesting.

Share based compensation is killing the bottom line at 6 cents per quarter EPS.  So, 1.00-.24 = $0.76 GAAP for fy07.  That means that NVTL is trading at a forward PE of 26 based on the AH bid at $19.90.

Not bad, but not what we were expecting here.  If there is a gap up tomorrow, it will be hard not to sell.


The company filed an annual meeting shareholder vote proxy today.  Notice the request for even more employee compensation shares (2,200,000).  Just another example of corporate management greed.

http://www.sec.gov/Archives/edgar/data/1022652/000119312507096267/ddef14a.htm

[yukiii]

That would put the Value of NVTL at $21 .77 for the year next quarter down from this quarter.
Hmmm

[Garoh]

I listened to the Earnings Conference Call good questions and answers 

What I knew that they would have a 36% growth from quarter to quarter and they'll have almost 1.05 per share for 2007 

looks interesting

[buddjas1]

Thanks Garoh---Did they provide GAAP guidance or discuss employee stock compensation?

[Garoh]

Thanks Garoh---Did they provide GAAP guidance or discuss employee stock compensation?

Yes buddjas1

they  expect second-quarter non-GAAP earnings of 20 cents to 22 cents a share and revenue of about $90 million ...

I think they can make $1.20  this year easily

[buddjas1]

That's non-GAAP, garoh--did they mention GAAP earnings?

[ygtrdr]

I listened to parts of the CC as well and didn't hear any discussion of GAAP or share based compensation.

Buddjas how do you figure -.06 per quarter based on one quarter of compensation? Excuse my ignorance if this is a stupid question.

Thanks.

[David Randolph]

There's something wrong with the conference call replay, I can't hear it after minute 10 or so, can you?

Anyway, the press release has material for me to make some revisions to my long term valuation model.

1) The share count on a fully diluted basis increased 2.43% over the last 12 months. I'm going to revise my 1.02 dilution factor to 1.0243, not significant. The balance sheet remains strong, with a current ratio of 2.7 and cash and equivalents of about $80 M.

(the conference call started again, after a 15 minute or so interruption)

2) Revenue increased 173.5% in Q1 2007 when compared to Q1 2006. Given the company's guidance of $385 M in revenue for 2007 (which they say is a measured guidance - with room for upside, as they have been raising guidance every couple of months), 2007 revenue growth will be 76.6%.

Given this my 30% revenue CAGR estimate is way too conservative. Let me revise this upward to 50%.

3) Net profit margin in Q1 2007 was 9.2%. If they make $1 EPS (GAAP) in 2007, it means they're looking at about $30.5 M net income, which on $385 M revenue means 7.9% net profit margin. I'll revise my net profit margin estimate down from 12% to 8%.

4) As usual I'll use the industry average for my EPS multiple estimate. In the Business Software & Services the average earnings multiple is 27.27.

Here are the valuation model results:



Expectations were lowered a bit, especially because of the net margin estimate contraction from 12% to 8%. The stock is still attractive, with an estimated share price CAGR of 38.18% and an optimal selling price of $31.62.

The company filed an annual meeting shareholder vote proxy today.  Notice the request for even more employee compensation shares (2,200,000).  Just another example of corporate management greed.

I guess that's because management almost has no shares of the company, which is weird. It seems they'll get their shares from diluting shareholder's value, which is the way it usually happens these days.

The hope on NVTL is that they'll keep raising guidance as they have been doing lately. I guess they're being somewhat conservative, not considering there will be growth in Q3 and Q4. In the conference call they talked about $385 M revenue and $1.05 EPS (non GAAP) almost as "cash in the pocket", so there's obviously upside to this number.

Probably the stock will retreat after tomorrow's gap up, but for as long as I consider it fundamentally attractive, I'll refuse to take short term profits to try to buy back the stock lower, since I could lose my position and with it the "certainty" of a large profit. I'll keep holding NVTL.

[yukiii]

The MACD is crossing over into positive territory, and NVTL is above the 10,20,30 & 50-day moving averages.

NVTL has almost no resistance now until about $22.50 Sell Target for now.

Many shorts that refuse to cover and many of the analysts who have $15-$21 targets on the stock (pre-earnings), and will have to raise those.

Will see what happens tomorrow.

Buy the way take a look at  WFR down $12 last few days. looks like it hit bottom today at $52. Strong growth.

[buddjas1]

Buddjas how do you figure -.06 per quarter based on one quarter of compensation? Excuse my ignorance if this is a stupid question.

Thanks.

Because that's the only data point that I have and the company suggested that share based compensation would continue in the future.  The actual effect could be more but could be less.  My point is that you cannot ignore it.

[buddjas1]

David, how do you figure $1.00 GAAP for the fy07, when the company just told us that "Non-GAAP Earnings Per Share, Diluted   $1.00 - $1.05"??  You must either be (a) ignoring share based compensation or (b) expecting NVTL to exceed drastically its own guidance.

If you were to use $0.80 GAAP for fy07, what would your chart say?

[David Randolph]

David, how do you figure $1.00 GAAP for the fy07, when the company just told us that "Non-GAAP Earnings Per Share, Diluted   $1.00 - $1.05"??  You must either be (a) ignoring share based compensation or (b) expecting NVTL to exceed drastically its own guidance.

If you were to use $0.80 GAAP for fy07, what would your chart say?

It's the b) option:

(b) expecting NVTL to exceed drastically its own guidance.

They're not considering any growth in the second half, and I'm pretty positive there will be strong growth, because I know the company's products and how demand for them is just starting to grow.

If you were to use $0.80 GAAP for fy07, what would your chart say?

EPS estimate is not a variable of the valuation model, so I can't do that. Ah, ok, you want me to lower the net profit margin, considering just $0.8 EPS on a GAAP basis, right?

Ok, $0.8 EPS would mean about $24.4 M in net income for the full year of 2007, which would translate to 6.33% net profit margin given the $385 M revenue guidance. Let me change the Net Profit margin estimate from 8% to 6.3%, and we get this:



The optimal selling price would decline to $24.9, still attractive.

But I don't think it is reasonable to expect NVTL to have $385 M in revenues in full year 2007, when the company already had $110 M in Q1. And I also don't think it is reasonable to expect GAAP EPS of $0.80 when the company already made $0.34 in Q1. That would be assuming revenues and profits would shrink throughout the year, and I believe the strong growth the company has been experiencing will continue or even accelerate.

This is why I'll keep holding NVTL, despite assuming there can be a short term pullback, because maybe the stock is overbought now - but my investment method ignores overbought/oversold conditions, it prefers to let the trend be my friend.

Thanks

[buddjas1]

But I don't think it is reasonable to expect NVTL to have $385 M in revenues in full year 2007, when the company already had $110 M in Q1. And I also don't think it is reasonable to expect GAAP EPS of $0.80 when the company already made $0.34 in Q1. That would be assuming revenues and profits would shrink throughout the year, and I believe the strong growth the company has been experiencing will continue or even accelerate.

I am not assuming anything because the company already told us that would happen, at least for Q2: "Non-GAAP Earnings Per Share, Diluted   $0.20 - $0.22."  Translated to GAAP, that is probably in the $0.14-$0.18 range. 

In any event, thanks for the pick David (applaud).  I sold at 19.38 for a nice gain. 

[David Randolph]

I am not assuming  anything because the company already told us that would happen, at least for Q2: "Non-GAAP Earnings Per Share, Diluted   $0.20 - $0.22."  Translated to GAAP, that is probably in the $0.14-$0.18 range.

Yes, but for the second half the company is projecting flat to slightly down sales, which I don't think is reasonable. They're essentially giving us the worst case scenario so they can raise guidance some more times and then beat their own guidance, just like it happened now.

Look at the guidance they gave on February 27th, 2007, for Q1, with more than half of the quarter already gone:



And then the guidance they gave on March 26, just one month later, 4 days before the close of the quarter:



And the actual results yesterday:



They're way too conservative when issuing guidance, expect them to raise estimates going forward.