Jefferies analyst Matthew McKay says Wednesday's pullback in Taser's (TASR) stock price (-5.6% to $12.54) presents an attractive buying opportunity.
Jefferies believes competitor Stinger Systems, the company accused of infringing Taser's patents, released a misleading press release that has caused temporary confusion in share prices. They view the sell-off as an overreaction.
- Stinger's challenge asserts Taser inappropriately filed a December 2005 patent application, thereby invalidating Taser intellectual property rights to inventions embodied in that application. Jefferies notes Taser is suing Stinger for patent infringements associated with this intellectual property, and says Stinger's counter-attack is a fairly standard legal tactic employed in patent infringement proceedings.
- The patents in question are for Taser's older M-26 model, which at this point contributes only about 2% of sales.
- Taser competitive advantage extends well beyond IP. Jefferies notes that Taser's large installed base and brand name is perhaps more critical to its competitive advantage. "Taser enjoys considerable traction and dominant market share among U.S. law enforcement agencies. Given a propensity for equipment to become standardized over time, we expect its adoption to continue to grow in step with increased market penetration for the devices. The competitive advantage also extends to the international law enforcement and consumer markets as well. A considerable amount of testing has already been performed abroad and several countries subsequently appear to be moving toward procurement. In the commercial market, Taser is moving closer to hitting its stride as it brings on new retailers and launches its advertising campaign."
Update: A note from Merriman agrees Wednesday's press release was a red herring, and wonders why Stinger would even put it out in view of the Stinger's own patent lawsuit. Merriman says the press release is no different than if Stinger "had put out a press release announcing that one of its lawyers had started his car this morning before driving to the courthouse." It too sees Wednesday's weakness as an attractive buying opportunity.