Wunderlich Initiates Airgain At Buy, Positive On Industry Tailwinds

Airgain is focusing on broader realm of IoT (Internet of Things) including residential gateways, connectivity peripherals, connected TVs, sensors, cameras and connected power meters. Wunderlich says these applications constitute a 700-million-unit market that is expected to grow 13 percent a year, on average, through 2021.

Moreover, Wunderlich noted that embedded antennas carry relatively high margins because intellectual property is incorporated in design collaboration with customers.

"With a focus on providing embedded antenna products, Airgain appears uniquely positioned as a collaborator with service and equipment suppliers to deliver products addressing consumer and commercial demand for better content delivery, the convenience of wireless, and IoT utility," analyst Matthew Robison wrote in a note.

Related Link: Northland Securities Initiates Coverage On Airgain Inc - Common Stock At Outperform, Announces $15 PT

Robison expects the company's share to expand from its current high single-digit percentage as more applications move to embedded antennas. The analyst also expects Airgain content to increase per unit as embedded antenna assemblies incorporate more antenna elements for MIMO (multiple-input and multiple-output) and interface/protocol proliferation.

"We believe these factors will enable Airgain to experience revenue growth at or above high-teens percentage levels and accomplish 25+ percent income growth over the next 3–5 years," Robison noted.

Meanwhile, Robison said the industry fundamentals remain solid as the market may need multiple antennas to deliver quality and high speed connectivity over larger areas through and around obstructions.

"With demand benefiting from the increasing content these trends imply, we model revenue growth at 50 percent above the aforementioned equipment market growth rate, in high teens annual percentages," Robison highlighted.

The $14 target price represents an enterprise value (EV)/sales multiple of 2.8x forward 12-month sales (inc. 2Q16E). This is below mid-way between that of the broader peer group (2.7x) and adjacent integrated circuit providers (3.1x).

"We expect Airgain to grow revenue faster than peers and expenses and achieve this growth with higher gross margin than many of the broader peer group," Robison added.

Shares of Airgain closed Friday's trading at $11.57. At time of writing Tuesday, the stock was down 1.56 percent at $11.39.

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