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Analyst Blog

On Aug 29, 2013, we reiterated our long-term Neutral recommendation on Novatel Wireless Inc. (NVTL - Analyst Report). The stock price soared 167% in the last year. We believe Novatel is currently fairly valued. Currently, Novatel carries a Zacks Rank #3 (Hold).

Why Kept at Neutral?

Increased demand for mobile broadband will bode well for Novatel going forward. The company currently serves the three large nationwide U.S. wireless operators, namely, Verizon Communications Inc. (VZ - Analyst Report), AT&T Inc. (T - Analyst Report) and Sprint Corp. (S - Analyst Report). Verizon will soon launch MiFi 4620 LE with an extended battery pack. AT&T is using MiFi 2 products. Recently, Novatel introduced MiFi 500 LTE with Sprint.

Within the M2M space, Novatel is concentrating on Commercial Telematics, Asset Tracking, Aftermarket Consumer Telematics and Fixed Telemetry. The company’s direct-to-enterprise sales policy and several product introductions in the last few months led to the success of its commercial telematics and Asset Tracking Verticals.

Novatel is also undergoing product trials with several national and international customers and is involved in different stages of sales negotiations with insurance service companies for a large number of opportunities in Commercial Telematics. We believe that if successful, this opportunity will play a substantial role in the company’s M2M business.

On the other hand, Novatel reported disappointing financial results for the second quarter of 2013. Both the top line and the bottom line fell below the respective Zacks Consensus Estimate.

This weakness was mainly dueto subdued performance of the Mobile Computing Product segment.  Suffering continuous losses may jeopardize Novatel’s balance sheet in the near future. Competitions from low-cost Asian manufacturers coupled with a limited customer base are also significant headwinds.

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