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Why Sierra Wireless Stock Jumped Higher Today

By John Ballard – Nov 10, 2021 at 3:37PM

Key Points

  • Revenue fell 27% over the year-ago quarter, but it was better than analysts expected.
  • Manufacturing constraints are gradually improving.
  • Management expects fourth-quarter revenue to be roughly flat compared to Q4 2020.

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Investors see improving results on the horizon.

What happened

Shares of Sierra Wireless (SWIR) were trading up 13.2% as of 2:15 p.m. EST on Wednesday, despite the broader market sell-off today. Investors cheered Sierra's third-quarter earnings results that showed record backlog at the end of the quarter.

For the third quarter, revenue fell 27% year over year to $82.5 million. Sierra Wireless is dealing with manufacturing capacity constraints and tight supply for parts and components, but investors were expecting worse results than what was reported.

A person using a mobile phone while walking outside.

Image source: Getty Images.

So what

Management reported "very strong customer demand" for Sierra's devices and services. The company is preparing new production lines at a facility in Mexico, which will allow Sierra to ship routers to enterprise customers much faster in the U.S. 

Meanwhile, management is staying disciplined with its operating expenses, only spending in necessary production areas to remain competitive. This didn't prevent Sierra from reporting a wider net loss in the quarter, but the adjusted earnings per share of $0.56 was better than the $0.70 loss analysts expected. 

Now what

Sierra is a leading solutions provider for the Internet-of-Things (IoT) market, including connection services, cloud, gateways, and embedded modules. Management sees favorable demand tailwinds ahead of new technologies ramping over the next few years serving the 5G, private networks, and mobile IoT solutions markets.

In the fourth quarter, management still sees the lingering impact of the pandemic creating a lot of uncertainty. However, it expects manufacturing capacity to improve in the near term and to ship more modules and gateways. This should translate to revenue between $120 million to $135 million, compared to $120.5 million in Q4 2020.   

The stock has been in rally mode since bottoming at the start of the pandemic in March 2020. Sierra appears to be well positioned for growing adoption of 5G and IoT technologies. It provides integrated solutions from routers to cloud solutions and designed the first 5G multi-network router for vehicles. Analysts see the company improving to a profit of $0.07 per share next year.

John Ballard has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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