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By David Berman

Kris Thompson, an analyst at National Bank Financial, isn’t so sure that DragonWave Inc. (DRWI) is going to win contracts with AT&T (T) Mobility or Verizon (VZ) Wireless – industry behemoths that would have been feathers in DragonWave’s cap.

As a result, he lowered his 12-month price target on DragonWave stock to $14 from $17, but remains upbeat about its prospects with an “outperform” recommendation.

“On March 10, 2010, we published a sensitivity analysis excluding AT&T Mobility from our forecast. The analysis showed that an AT&T Mobility win, while nice, is not required to support our previous forecast,” the analyst wrote in a note.

“Our view is that DragonWave could make up for that loss by deploying into a larger than expected Verizon Wireless microwave backhaul roll-out. We do become more concerned if DragonWave does not win at Verizon Wireless. Our checks at the CTIA Wireless show imparted reduced confidence that DragonWave will win at Verizon Wireless. We continue to expect Verizon Wireless to select its initial microwave backhaul vendors before July 2010.”

Meanwhile, Mr. Thompson pointed out that the short interest in the stock is at high levels due to skepticism over whether the company can expand its customer base. Investors have now shorted about 25 per cent of DragonWave's total outstanding shares.

“It appears as though the shorts are playing into the fear that DragonWave will not win the AT&T Mobility contract. We are of the view that DragonWave will not win a deployment at AT&T Mobility. There is upside to our estimates if our assumption here is incorrect.”

Source: DragonWave: Uncertainty Surrounds AT&T, Verizon Contracts