Shares of Ottawa-based DragonWave Inc. have seen some turbulence in the past few weeks, recently dipping below US$10 on the Nasdaq (its IPO price). Speculation that the next-generation data solutions provider for wireless networks may have lost the AT&T Mobilty award may be to blame. Kris Thompson at National Bank Financial suggested that there short selling in the United States could also be a factor.
U.S. cable companies are also highlighting a strong interest in participating in DragonWave’s area of expertise (mobile backhaul), which could also be scaring some investors away from the stock, the analyst noted.
However, with or without AT&T Mobility as a customer, he recommends buying DragonWave. Mr. Thompson rates the stock at Outperform with a $17 price target – upside of more than 60%.
“Our top-down tower forecast does not heavily rely on AT&T Mobility as a customer,” he said. The analyst believes that his fiscal 2011 revenue estimates would still be achievable if DragonWave deploys at Verizon Wireless at a level above his conservative expectations.
If DragonWave does not win at AT&T, the stock could sell off further, which Mr. Thompson would consider a buying opportunity. He said much of the roughly 20% short interest on the stock would likely need to be covered on that news, which could prompt a rally on renewed buying volume.
His target price does reflect expectations that Clearwire will deploy microwave backhaul more aggressively as it expands its footprint beyond the initial 120 million population.