Sierra Wireless Inc Valuation – September 2018 $TSE:SW

Company Profile (excerpt from Reuters): Sierra Wireless, Inc., incorporated on May 31, 1993, is engaged in building the Internet of Things (IoT) with wireless solutions for organizations. The Company’s segments include OEM Solutions, Enterprise Solutions, and Cloud and Connectivity Services. The Company offers a portfolio of second generation (2G), third generation (3G), and fourth generation (4G) cellular embedded wireless modules and gateways, integrated with its secure cloud and connectivity services. The Company offers its products to original equipment manufacturers (OEMs) and enterprises. The markets for its products are North America, Europe and Asia Pacific. Its OEM Solution segment is engaged in cellular embedded wireless modules for IoT connectivity, including an embedded application framework to support customer applications. Its Enterprise Solution segment is engaged in intelligent routers and gateways, including management tools and applications that enable cellular connectivity. Its Cloud and Connectivity Services segment is engaged in a cloud based platform for deploying and managing IoT applications, Smart SIM supported by mobile core networks, and managed wireless broadband services to enable customer IoT deployments.

Downloadable PDF version of this valuation:

ModernGraham Valuation of TSE-SW – September 2018

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $687,068,923 Fail
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.61 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Fail
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -172.13% Fail
6. Moderate PEmg Ratio PEmg < 20 47.31 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.51 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.61 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.33 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Fail
5. Earnings Growth EPSmg greater than 5 years ago Pass


Stage 2: Determination of Intrinsic Value

EPSmg $0.52
MG Growth Estimate 9.51%
MG Value $14.31
Opinion Overvalued
MG Grade F
MG Value based on 3% Growth $7.54
MG Value based on 0% Growth $4.42
Market Implied Growth Rate 19.40%
Current Price $24.61
% of Intrinsic Value 171.95%

Sierra Wireless, Inc. (USA) does not satisfy the requirements of either the Enterprising Investor or the more conservative Defensive Investor. The Defensive Investor is concerned with the small size, low current ratio, insufficient earnings stability or growth over the last ten years, and the poor dividend history, and the high PEmg ratio. The Enterprising Investor has concerns regarding the lack of earnings stability over the last five years, and the lack of dividends. As a result, all value investors following the ModernGraham approach should explore other opportunities at this time or proceed cautiously with a speculative attitude.

As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $0.32 in 2014 to an estimated $0.52 for 2018. This level of demonstrated earnings growth does not support the market’s implied estimate of 19.4% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.

At the time of valuation, further research into Sierra Wireless, Inc. (USA) revealed the company was trading above its Graham Number of $21.29. The company does not pay a dividend. Its PEmg (price over earnings per share – ModernGraham) was 47.31, which was above the industry average of 43.01. Finally, the company was trading above its Net Current Asset Value (NCAV) of $2.63.

Sierra Wireless, Inc. (USA) scores quite poorly in the ModernGraham grading system, with an overall grade of F.

Stage 3: Information for Further Research

Net Current Asset Value (NCAV) $2.63
Graham Number $21.29
PEmg 47.31
Current Ratio 1.61
PB Ratio 1.51
Current Dividend $0.00
Dividend Yield 0.00%
Number of Consecutive Years of Dividend Growth 0

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Most Recent Balance Sheet Figures

Balance Sheet Information 6/1/2018
Total Current Assets $408,261,000
Total Current Liabilities $253,760,000
Long-Term Debt $50,659,000
Total Assets $900,606,000
Intangible Assets $406,206,000
Total Liabilities $313,381,000
Shares Outstanding (Diluted Average) 36,021,000

Earnings Per Share History

EPS History
Next Fiscal Year Estimate $1.21
Dec2017 $0.17
Dec2016 $0.64
Dec2015 -$0.11
Dec2014 -$0.61
Dec2013 $1.90
Dec2012 $0.87
Dec2011 -$0.96
Dec2010 -$0.47
Dec2009 -$1.36
Dec2008 $2.47
Dec2007 $1.16
Dec2006 $0.44
Dec2005 -$1.67
Dec2004 $1.17
Dec2003 $0.16
Dec2002 -$3.99
Dec2001 -$2.37
Dec2000 -$0.30
Dec1999 $0.34
Dec1998 $0.15

Earnings Per Share – ModernGraham History

EPSmg History
Next Fiscal Year Estimate $0.52
Dec2017 $0.25
Dec2016 $0.37
Dec2015 $0.23
Dec2014 $0.32
Dec2013 $0.52
Dec2012 -$0.08
Dec2011 -$0.31
Dec2010 $0.16
Dec2009 $0.38
Dec2008 $1.07
Dec2007 $0.34
Dec2006 -$0.31
Dec2005 -$0.90
Dec2004 -$0.70
Dec2003 -$1.50
Dec2002 -$1.97

Recommended Reading:

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Sierra Wireless Inc Valuation – Initial Coverage $TSE:SW

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.

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