Smith Micro Software upgraded to “buy”
Developer and marketer of wireless communications software products and services Smith Micro Software Inc. (Nasdaq: SMSI) was upgraded by Jefferies & Co. to a “buy” rating from a “hold” rating on news that Verizon appears to have softened its stance on the XP/Vista issue.
Jeffries & Co. analyst James Alexander said there are indications that Verizon has completed testing Smith Micro Software's Vista-compatible Music Essential Kits (MEKs) for several high volume music handsets and that shipments could begin anytime.
On account of Verizon’s completed testing, Alexander expects second-quarter earnings to clock in “in line” to “slightly above” previously calculated estimates.
Alexander writes, “With only 6 days remaining in Q2'07, the impact to the quarter will likely be modest with revenue in line to slightly better than our $14.7 million estimate.”
Alexander’s earnings estimates for the second quarter of 2007 remain unchanged at $14.7 million, or $0.14 per share, compared with $0.13 per share for the second quarter a year earlier. However, his estimates for the 2007 fiscal year increase to $77 million or $0.84 per share, from his previous estimate of $76 million or $0.83 per share. Alexander’s 2008 estimates increase to $109 million, or $1.00 per share, from a previously estimated $107 million or $0.98 per share.
The consensus of 10 analysts polled by Thompson Finacial is $0.84 per share for fiscal year 2007, and $0.99 per share for fiscal year 2008.
Trading at 15 times 2008 earnings, Alexander also increased his target price for Smith Micro Software to $20 from $14. Shares of Smith Micro Software gained 6.21% or $0.91 to $15.56 in midday trading Monday.
Alexander said he also believes that Smith Micro Software will benefit from Sprint and Verizon’s competitive response in the form of new music handsets to Apple’s iPhone. Alexander said that Verizon and Sprint are expected to launch new music-enabled handsets during the fourth quarter holiday season.
