Alvarion Stock Incredibly Cheap, Even Without Open Range Deal

As hinted Tuesday, including on my instablog, Alvarion (ALVR) officially announced a deal that will exceed $100M over 5 years. Now the deal is with Open Range instead of Clearwire (CLWR). Open Range is a company I've never heard of so I was skeptical at first.

After reading up on them and understanding that a large part of the funds is coming from the Rural Broadband portion of the stimulus plan, I'm a lot more comfortable like the market that this is a solid deal. Not to mention that ALVR has a history of being conservative.

Oddly I was planning on doing a writeup about the $7M Nigerian deal that they announced a few weeks back. That deal was important to me because of the growing importance of Africa and specifically Nigeria. It also had the potential to be a $20M deal down the road.

This deal, however, trumps that in a large way. It also gives ALVR some exposure to the US market, which always seems what the stock market wants. Odd, considering that the emerging market story has been huge for most stocks, but it never seemed to help ALVR. People were always more focused on them not participating in either the Sprint (S) or Clearwire deals.

Globes reports that the deal could actually approach $150M, an amount that would easily make this the largest deal by far in their history. From looking at Open Range's website, it appears that they have over $350M in funding so that amount is clearly possible. It would also provide ALVR more 'recurring' revenue that always concerns analysts wanting predictability.

Alvarion said the deal is worth $100 million over five years. However, market sources estimate it may reach as high as $150 million. It is the largest contract in Alvarion's history.

Analysts have already rushed out to raise estimates.

Alvarion estimates and target raised to $6.20 at Morgan Joseph following rural broadband contract (4.17 +0.56) - Update: Morgan Joseph raises their FY09 EPS estimates to $0.01 from $(0.03) (consensus $0.01), as well as their FY10 EPS estimates to $0.40 from $0.25 (consensus $0.20) and target to $6.20 from $4.70 following news that the co received a contract for over $100 million over five years from a U.S. broadband operator for a Rural Utilities Service funded deployment across 17 states and 546 rural communities. The firm believes this contract may be the first of several contracts in which ALVR competes related to the $7.2 b bln U.S. stimulus package for rural broadband given the company's "Buy American" status for two of its BreezeMax base stations.

Oscar Gruss raised their target to $6 from $4, and views ALVR's $100 million win as a major cornerstone for the company. Firm believes The Rural Utilities Service project, one of the largest WiMAX deployments to date, endorses ALVR's rank among the top three brands in the industry. Open Range plans to deliver broadband into 546 rural communities in 17 states, reaching up to 6 million people. Firm anticipates initial shipments in Q3, and a stronger build-up in q4. Thus firm expects a direct bearing of $20 million in revenues for 2010, with a minor markup in OpEx. Firm expects the revs distribution to be broadly maintained at $20 million sales per annum, over the remaining 4 years. Firm continues to view the stock as a compelling long term risk/reward opportunity.

ALVR is up roughly 35% in the last two days, but at just over $4 the stock is incredibly cheap even without this deal. Not sure I'd rush in today as it'll likely pull back some depending on the overall market. Luckily, Stone Fox Capital has already positioned clients in this stock and we'll likely hold those stocks for much higher prices. This could be the first of many rural US contracts.

Comments

[BigOlDave:]

Sometimes "cheap" is worth the price.

Dave

Jun 18 12:53 PM

[Peter AP:]

Thanks for the hint.

Jun 19 07:46 PM

[Ames Tiedeman:]

Agree that ALVR is a buy at these levels. One may want to wait a bit however as it has had quite a run. Based on valuation ALVR has a long way up to go. This is yet another example of a world class Israeli company. I would not be surprised to see ALVR back to 10 within the next 3 years.

Jun 20 04:11 PM

[Ames Tiedeman:]

Picking an entry point is not always easy. I expect the March to June rally to end this month and a hard decline to follow. This being said, ALVR under $4.00 is a screaming buy. If one believes this is a $10.00 stock in 36 months or less then one must pick their buy points and not cry if it goes lower. I would start to buy bits and pieces of ALVR under 3.90 and buy all the way down. That's right, buy all the way down until it stops falling and then keep buying all the way back up to $5.00. This goes against some of the talking heads on CNBC, but if one believes a stock is worth $10.00 then their is nothing wrong about paying up to $5.00.

Jun 22 08:56 AM

[Stone Fox C...:]

agree that ALVR is a screaming buy below $4. As far as the market rolling over, I wouldn't bet on that b/c everybody expects it. I'm watching carefully, we're at a bunch of key technical levels so a move in either direction will be very telling.

Jun 22 02:41 PM

[Ames Tiedeman:]

Another nice win for ALVR. This one from Italy. ALVR continues to grow.

Jun 23 08:23 AM

[Stone Fox C...:]

Yep. Being the one major player focused on Wimax has to helping them now. Some of the competition is gone and alot of the big players aren't as focused any more. ALVR is the best of breed.

Jun 23 11:22 AM

[Ames Tiedeman:]

ALVR had a terrific week. This despite that from a purely technical perspective ALVR is over bought. Sometimes on good news they can run further and faster than one anticipates. I would not be surprised to see ALVR trading north of $5.00 before the end of July. A few more contract wins and this will be a 10 or 15 stock again. Very encouraging.

Jun 26 07:59 PM

[Ames Tiedeman:]

I am initiating ALVR with a Strong Buy rating. Despite the confusion over the Q2 results, ALVR is poised for strong growth over the next 18 months. Contract wins should be rapid and a return to profitability should occur in Q4, 2009. As we look toward 2010 it should be noted that major revenue gains should take place. I am upping my earnings forecast from .22 cents a share to .30 cents a share for the full year, 2010. The story of ALVR is 2010 story. It is strongly recommended that ALVR be accumulated at these levels while the shares still trade at a deep discount to their peers. CLWR is currently trading at an expensive, 7 times sales while ALVR is trading at less than 1 times 2010 sales.

Jul 31 04:44 PM