Smith Micro Retains a Buy

Smith Micro Software Inc. (SMSI - Analyst Report) is a developer of wireless communications software and utility software for multiple OS [operating systems] platforms.

It has significant relationships with several large cellular providers and OEM [original equipment manufacturer] cell phone makers. We remain encouraged by the company’s recent results and strong brand recognition.

However, we believe the weakening macro environment and declining consumer spending is likely to slowdown its main segment Connectivity. The company has lowered its guidance for fiscal 2008. We have adjusted our estimates accordingly. Our rating remains a BUY with a six month target price of $8.50.

On a sales-per-share of $2.94, Smith Micro is trading at a P/S [price-to-sales] multiple of 2.0, which is currently selling above the group average. Smith Micro is also trading at 8.4x our estimated 2009 EPS of $0.71. On an absolute P/E multiple, the stock appears to be cheap and is trading at a discount to its peers. Moreover, its stronger growth rate makes the stock look more attractive with a PEG ratio of 0.34. Since future earnings will be taxed, we feel that the PEG ratio should be closer to the group average. This equates to a price close to our target of $8.50 per share.

Anita Mohata contributed to the report.

Read the full analyst report on SMSI