Restructuring The Balance Sheet And Expanding FWA Will Secure Stability

Key Takeaways

• Strategic focus on scaling fixed wireless access and MiFi businesses aligns with global wireless broadband demand, potentially driving revenue growth.
  
• Increased emphasis on software and services through Inseego Connect can enhance gross margins with recurring revenue and stabilize earnings.
  
• Dependency on large partners, inventory issues, and product transition risks could impact short-term revenue and market share, despite hopes for future revenue acceleration.

Catalysts

Engages in the design and development of cloud-managed wireless wide area network (WAN) and intelligent edge solutions for businesses, consumers, and governments in the United Stated, Europe, and internationally.

• The ongoing transition of Inseego, which includes optimizing working capital, restructuring the balance sheet, and reducing debt, positions the company for future financial stability and potentially improved net margins and earnings.
  
• Inseego's strategic focus on scaling its fixed wireless access (FWA) and MiFi businesses and expanding its product portfolio is expected to drive future revenue growth as wireless broadband demand increases globally.
  
• The company's increased emphasis on its software and services, particularly through its Inseego Connect platform, offers a path to recurring revenue, which can enhance gross margins and stabilize earnings.
  
• Inseego's commitment to explore new market opportunities in enterprise and industrial segments and partnering with carriers for expanded go-to-market strategies may lead to revenue diversification and growth, potentially impacting top-line performance positively.
  
• The appointment of Juho Sarvikas, who brings extensive industry experience and strong relationships within the wireless sector, is a catalyst for strengthening business operations and strategic market positioning, potentially leading to improved earnings and profit margins.

Inseego Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Inseego's revenue will grow by 5.9% annually over the next 3 years.
• Analysts assume that profit margins will increase from -9.2% today to 14.7% in 3 years time.
• Analysts expect earnings to reach $33.3 million (and earnings per share of $2.07) by about April 2028, up from $-17.6 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 9.1x on those 2028 earnings, up from -7.1x today. This future PE is lower than the current PE for the US Communications industry at 26.4x.
• Analysts expect the number of shares outstanding to grow by 7.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.66%, as per the Simply Wall St company report.

Inseego Future Earnings Per Share Growth

Risks

• There are concerns about higher-than-anticipated customer inventory levels at year-end and product transitions leading to a sequential decline in Q1 2025 revenue, which may impact short-term revenue expectations.
  
• The potential for delayed benefits from research and development investments might impact net margins and earnings as these efforts are capital-intensive and realizable returns could take time.
  
• The dependency on large carrier partners for revenue growth poses a risk; any disruptions in these partnerships or delays in customer transitions could impact revenue stability.
  
• The expectation of significant revenue acceleration in the second half of 2025 hinges on timely execution of new product introductions and customer acquisitions, introducing execution risks that could affect both short
• and long-term financial performance.
  
• Competitive dynamics and market entry challenges in transitioning to broader geographical and customer segments could impact the company's revenue forecast and market share acquisition efforts.

Valuation

• The analysts have a consensus price target of $13.5 for Inseego based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $16.5, and the most bearish reporting a price target of just $11.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $226.9 million, earnings will come to $33.3 million, and it would be trading on a PE ratio of 9.1x, assuming you use a discount rate of 7.7%.
  
• Given the current share price of $8.37, the analyst price target of $13.5 is 38.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.