Smith Micro's Business Improving - MJ

| About: Smith Micro (SMSI)

Morgan Joseph is out with a major one, saying they believe Smith Micro's (NASDAQ:SMSI) business is transforming for the better as both its customer list and its product portfolio grow. The changes should bode well in the manifestation of both improved consistency and predictability of sales and earnings. As the current year unfolds, investors' appreciation should build as its progress is demonstrated in reported results, and they see SMSI's valuation multiple being rewarded accordingly over the next 12 months.

Firm's 4Q07 checks indicate that data connectivity sales have remained robust. For Smith, data sales of $8.0mm in 3Q07 were up 38% Q-Q, and they suspect they have at least remained at those levels, if not increased slightly.

Music phones continue to rock Verizon. MJ's survey of 58 Verizon stores late last year found LG's Voyager phone to be the hottest seller. Smith Micro typically needs to see a high music software attach rate to benefit, but the current configuration, sold with a software CD included with the phone box, has proven to be quite lucrative. Importantly, converged devices appear to be winning share, and music bolsters the company's sales.

Shares could be firm's best performer this year. Trading at about 8x FY08 $1.00 EPS estimate, they think Smith Micro Software's shares could trade to 20x as new initiatives begin to prove themselves. On that basis, SMSI could well be their best stock pick for price appreciation potential in 2008.

Reiterates Buy and $20 target.

Notablecalls: This is a good call. One-time analyst darling seems to be a forgotten stock here but MJ's call is likely to generate some serious interest in the near term