Maritime connectivity-as-a-service provider KVH Industries, Inc. KVHI achieved strong shipments of its Agile product, but has indicated near-term headwinds as it adds customer-facing staff for its customers, according to Raymond James.
The Analyst
Raymond James’ Ric Prentiss reiterated an Outperform rating on KVH Industries and reduced the price target from $14 to $13.
The Thesis
KVH Industries is estimated to have shipped 242 Agile units in the fourth quarter, representing strong growth of around 87 percent year-on-year, Prentiss said in a Monday note.
The analyst said he expects the company’s Agile shipments to grow at double-digit rates in 2019.
The company announced "weak" initial 2019 adjusted EBITDA guidance to reflect near-term costs associated with growing its team for supporting Agile customers, Prentiss said. The company expects the Agile program to break even in mid-2019 and become free cash flow positive for the year.
The strong Agile shipments inspire confidence in KVH Industries’ shift to a recurring service revenue model, which should support EBITDA margin expansion going forward, the analyst said.
Expansion of KVH's Illinois factory should allow the company to meet the demand for fiber optic gyro — FOG — products while improving product margins as labor costs decline with scale, Prentiss said.
The adoption of the company’s new photonic chip-based FOG product by the autonomous vehicle market and the potential for international tactical navigation orders reach $40-$50 million could lend upside, according to Raymond James.
Price Action
KVH Industries shares were down 4.32 percent at $10.62 at the time of publication Tuesday.
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