Powerwave Technologies: Set to Double?

| About: Powerwave Technologies, (PWAV)
This article is now exclusive for PRO subscribers.

On May 4, 2010, Powerwave Technologies, Inc. (NASDAQ:PWAV) traded at a 52 week high of $1.94 after two analysts upgraded Powerwave to buy.

I believe Powerwave is considerably undervalued, and it should double from its current share price of $1.63 over the next 6 to 12 months.

Analysts Upgrades:

  • Jefferies & Co. analyst William Choi raised his rating on the shares to Buy from Hold, with a new target of $3,. up from $1.50. “Powerwave will likely see good demand in 2010 as wireless operators increase capacity,” he writes, adding that the company has reduced its cost structure, and should see operating leverage as demand returns.
  • Merriman Curhan Ford analyst Scott Searle upped his rating to Buy from Neutral. He contends that the Q1 miss is more than offset by “a better-than-expected outlook for the remainder of the year.”

Powerwave is a world wide supplier of end-to-end wireless solutions for wireless communications networks. The company’s business consists of the design, manufacture, marketing and sale of products to improve coverage, capacity and data speed in wireless communications networks, including antennas, boosters, combiners, cabinets, shelters, filters, radio frequency power amplifiers, remote radio head transceivers, repeaters, tower-mounted amplifiers and advanced coverage solutions. The products are utilized in wireless networks globally, which support voice and data communications by use of cell phones and other wireless communication devices. Powerwave sell the products to both original equipment manufacturers, which incorporate the products into their base stations.

Antenna Systems

The product group includes base station antennas and tower-mounted amplifiers. Powerwave offers a range of base station antennas, which cover all radio frequency bands including cellular, personal communication system (PCS), third-generation (3G) and fourth-generation (4G) bands. The products also support the wireless transmission protocols. The base station antenna products include single, dual and triple-band solutions based on technology in a range of sizes. The company also offer remote-adjustable electrical tilt antennas which provide remote control and monitoring capabilities. Powerwave manufactures a range of tower-mounted amplifiers which improve wireless network performance by filtering and amplifying as close as possible to the receiving antenna, thus reducing signal loss and noise. The tower-mounted amplifier products cover all wireless frequency ranges and transmission protocols.

Base Station Subsystems

The product group includes products, which are installed into or around the base station of wireless networks and includes products such as boosters, combiners, filters, radio frequency power amplifiers, VersaFlex cabinets and radio transceivers. The company offers both single and multi-carrier radio frequency power amplifiers for use in all major global frequency bands including cellular, PCS, 3G and 4G bands, supporting all transmission protocols. The system applications include code division multiple access ((CDMA(), CDMA 2000, wideband code division multiple access (WCDMA), global system for mobile communication (GSM), enhanced data GSM environment (EDGE), and universal mobile telecommunication system (UMTS) protocols with output power ranging from 10 to 180 watts. In addition, the company produce filters, which can improve the signal transmission for both up and down link, as well as help to reduce out of band performance. The filters cover all the global frequency bands. Along with filters, Powerwave provide radio frequency power combiners, which allow for the connecting of multiple radio frequency power signals.

The company also provides a range of integrated radio solutions. One current product offering is the digital remote radio head transceiver, which provides operators the ability to partition the radio transceiver, power amplifier and duplexer in a remote chassis, which can then be co-located near the antenna to minimize signal loss over the traditional antenna path. The digital remote radio head utilizes base band (I/Q) signals from the output of the modem, through fiber optic cables which offer improved performance over distance versus traditional cables.

Coverage Solutions

The group consists of distributed antenna systems, repeaters and advanced coverage solutions. The distributed antenna systems solutions provide the equipment to co-locate multiple wireless operators on multiple frequency bands within a single location, while allowing each operator to maintain full control over parameters critical to its network’s performance. The repeater systems are utilized in wireless communications networks to improve signal quality where physical structures or geographic constraints result in low radio frequency signal strength. The products can be used for both single and multiple-operator applications. The systems are available in a wide frequency range from 700 megahertz (MHz) to 2600 MHz, support all transmission protocols, and have features and functions that allow network operators to remotely monitor and adjust these systems.

In February this year, I became aware of Powerwave after reading remarks from Merriman analyst Scott Searle. He said "Powerwave is well positioned to benefit from the capacity additions required by next generation wireless networks, i.e. 3G, LTE and WiMAX. As a fully functional mobile data ecosystem

(networks, devices and applications) continues to drive dramatic increases in network traffic (up 100%+ per year) operators will be required to invest in incremental network capacity. Regardless if it is on existing or next generation networks, Powerwave stands to benefit. However, visibility remains limited given seasonality and the infrastructure struggles of two key OEMs, Nokia (NYSE:NOK) and Alcatel-Lucent (ALU) (roughly 1/3 of revenue). Longer-term, we believe new products (remote radio heads), new verticals (government) and a modest market recovery can drive EPS of approaching $0.20. We await better visibility and are initiating coverage with a Neutral rating." Now that he raised he rating to buy, I am getting on board the train.

Powerwave has a forecasted earnings growth rate of 27.00%. The forward price to earnings ratio is 11. Powerwave trades at just 0.4x sales, which is 50% less compared to its direct competitors CommScope, Inc. (CTV) and ADC Telecommunications, Inc. (ADCT).

Investors buying Powerwave now are getting a bargain, given the growth prospects and analysts new opinions. I expect the stock will make a new 52 week high very soon and trade into the $2 range. Powerwave has a current fair value of $2.45 a share.

Last week on June 17, 2010, I sold 50% of my Vonage (NYSE:VG) long position at $2.75 a share, locking in more than a double. Congratulations to investors that bought after reading my article published on April 05,2010 (on how Vonage could be a possible double). I have invested the gains into Powerwave..

Disclosure: Author started new position in PWAV. He holds a long position in VG and has no other positions in the stocks mentioned.