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Analyst Blog

On Nov 26, we maintained our Neutral recommendation on Novatel Wireless Inc. (NVTL - Analyst Report), as the company’s top and bottom lines missed the Zacks Consensus Estimate in the recently concluded quarter.

Why the Reiteration?

Going forward, increased demand for mobile broadband will help Novatel. The company currently serves the three large wireless operators in the U.S., namely, Verizon Wireless, AT&T and Sprint.

Novatel’s future prospects look promising as it plans to acquire new customers and launch MiFi products for major telecom operators. Moreover, higher proliferation of 4G-based devices and the launch of Windows-8 based devices will further create growth opportunities for the company in the near future. Furthermore, the company has commercially launched its CDMA products and is making strong progress to rollout its HSPA-based products in the market.

Recently, the company struck a deal with DigiCore Holdings Ltd., a leading provider of advanced machine-to-machine (M2M) communication and telematics solutions, to supply various versions of Novatel Wireless’ advanced MT 3060 OBDII technology.

The company also signed a contract with NexTraq, a leading provider of fleet management and vehicle tracking solution to offer MT 3000 that offers GPS and geo-sensing support. It also signed a long-term deal with RAC Monitoring service to offer MT3060 telematics devices for vehicle tracking and crash detection. We believe that if successful, this opportunity will play a substantial role in the company’s M2M business.

On the flipside, intensifying competition for embedded modules is a major concern for Novatel. In addition to its traditional rival, Sierra Wireless, the company is facing significant challenges from newly launched products by large manufacturers, including Qualcomm and L.M. Ericsson.

Business performance for Novatel depends on a limited number of customers, who represent a significant portion of the company’s total revenue. Moreover, the company’s business is geographically less diversified as North America accounts for nearly 97% of total revenue.

Currently, Novatel Wireless has a Zacks Rank #3 (Hold).

Other Stocks to Consider

Other companies belonging to the same sector are Ubiquiti Networks, Inc. (UBNT - Analyst Report), Mitel Networks Corp. (MITL - Snapshot Report) and Motorola Solutions Inc. (MSI - Analyst Report). Ubiquiti Networks has Zacks Rank #1 (Strong Buy) while both Mitel Networks and Motorola Solutions have a Zacks Rank #2 (Buy).

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