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CalAmp Corp. (NYSE: CAMP)
Important Company Financial Data (as of February 18th) Price: $30.69 ROE: 49.52% PEG: 1.47 Debt/Equity: 1.86 EPS: 1.20 ROA: 9.08% Market Cap: $1.04 bill Net Income Margin: 18.43% Trailing P/E: 25.68 Beta: 0.64 52 Week: 8.96 -‐ 33.59 Target Price: $40 Forward P/E: 29.23 Thesis CalAmp is a leading provider of wireless communications solutions poised to reap the benefits of a potentially overwhelming new phenomenon known as the “Internet of Things.” Overlapping into multiple markets in a macro-‐economic effect, this unfamiliar concept has the potential to literally “overwhelm society” according to The Economist. CalAmp possesses the products and services to turn this idea into a reality with proven expertise on M2M solutions and as a leader in wireless communications. CalAmp is a vertically integrated product leader that’s solid fundamentals and recent acquisition of RSI will allow it to grow tremendously in conjunction with the emergence of the “Internet of Things.” Key Points
! CalAmp is positioned at the center of major growth trends in the “Internet of Things” and M2M market. o “The Internet of Things” has been touted by many as the next big thing as it will create networks based on
M2M interactions allowing for more connectedness and increased efficiency in businesses and homes (see Exhibit #1)
" M2M is a system comprised of a device to capture data or control/actuate remote assets, communicating across a wide area network to a software application that provides operational control and translates data into useful information.
-‐ Example of data capturing: A public bridge wirelessly alerting the Department of Transportation when it has a pothole or needs repairs.
-‐ Example of actuating remote assets: A car dealership disabling a rental car if the owner misses a payment.
" The purpose of M2M devices is to streamline business processes by getting the right information into the hands of the right people at the right time.
o Cisco’s President of development and sales, Rob Loyd, has stated that the stake of the value of the “Internet of things” is around $14.4 trillion, as it has the potential to specifically disrupt the energy, transportation, and government sectors among others.
" Cisco similarly stated that estimates show around 50 billion devices will be wirelessly interconnected and communicating by the end of 2020 (up from around 10 billion today) (see Exhibit #4).
" Additionally, the market for wireless networks is at $3.8 billion today and estimated to grow to $6.8 billion by 2016.
o This concept will allow for improved wireless communications through two areas: Information and Analysis and Automation and Control.
" Under the category of Information and Analysis are the three applications of tracking behavior, enhanced situational awareness, and sensor-‐driven analytics.
-‐ Example of tracking: Presence-‐based advertising and payments based on locations of consumers.
-‐ Example of enhanced situational awareness: Sniper detection using direction of sound to locate shooters.
-‐ Example of sensor-‐driven analytics: Oil field site planning with 3D visualization and simulation.
" Under the category of Automation and Control are the three applications of process optimization, optimized resource consumption, and complex autonomous systems.
-‐ Example of process optimization: Continuous, precise adjustments in manufacturing lines -‐ Example of optimized resource consumption: Smart meters and energy grids that match
loads and generation capacity in order to lower costs. -‐ Example of complex autonomous systems: Collision avoidance systems to sense objects
Name: Nick Galdos College/School: CLAS Year: 2nd Year
CalAmp Corp. (NYSE: CAMP) and automatically brake.
o The M2M Industry has been growing significantly as seen by the following industry tailwinds. " Upgrade of legacy infrastructure and assets. " Faster, more powerful carrier networks (3G, 4G/LTE) and compelling data pricing. " Increasing appreciation for benefits and opportunities from M2M connectivity. " 24-‐7 connected society and proliferation of real time applications.
! Market Leadership o CalAmp is an emerging leader in the still vastly untapped M2M market
" It possesses superior services and recognition for innovation within the industry, specifically for wireless solutions (as seen with its LMU-‐3030)
" CalAmp possesses vertically integrated capabilities while offering a broad range of technology platforms that specifically focuses on satellite and wireless solution systems.
o CalAmp is significantly smaller than Motorola Solutions (MSI) and Sharp Corporation (SHCAY) but is in a unique position to grow given its specialized and explicit commitment to wireless networking solutions and increasing revenues from their satellite solutions.
! Solid Fundamentals o CalAmp ended the most recent quarter with $31.1 million in cash, while debt stands at just $2.2 million,
resulting in a comfortable net cash position o While only 1/16th the size of MSI and 1/4th the size of SHCAY, CalAmp remains less volatile (Beta: 0.64) than
the industry despite the stock surging nearly 68% since October. o Sales have grown 57.9% since 2011 and are expected to continue increasing with the emergence of the
market. o Stock growth matches rise in fundamentals
" CalAmp’s stock price rose 314% in 2013 without getting ahead of its fundamentals -‐ Growth: Profits, margins, and free cash flow are all increasing (see Exhibit #2) -‐ Valuation: share prices are growing in line with earnings per share (see Exhibit #2) -‐ Opportunities: return on equity is increasing while debt to equity is decreasing (see Exhibit
#3) ! Recent acquisition of RSI for $6.5 mil
o CalAmp recently (12/18/13) acquired privately held Radio Satellite Integrators (RSI), a southern California based provider of mobile resource management (MRM) solutions to city and county government agencies.
o This acquisition will increase CALAMP’s presence in the government sector via public safety solution as RSI’s Software-‐as-‐a-‐Service (SaaS) solutions are utilized by fleet types specific to public works, waste management, and transit and public safety.
o CalAmp CEO, Michael Burdiek, commented that the acquisition will “Increase our recurring revenue stream and enhances our growth prospects as governments look to leverage the FirstNet broadband network for a range of voice, data, and video services.”
! Recent LMU-‐3030 Certification by Sprint o CalAmp’s LMU-‐3030 wireless tracking/communications device has recently (2/5/14) been certified by Sprint
to be used in their Usage-‐Based Insurance (UBI) programs and other telematics services. o Features such as collision detection and monitoring and measuring key vehicle and driving behavior
indicators, allow LMU-‐3030 to create a simple and reliable solution insurers will use to assess driving performance and more accurately price auto insurance policies.
Misperceptions ! Misperception #1: People are aware of this new concept and thus it is being built into the stock price
o Correction: Polls show that only 16% of the population is familiar with the terms “Internet of Things” or “Internet of Everything”, despite nearly 41% using some variance of the concept.
" Motley Fool CIO, Andy Cross, discussed how “We are only a few years away from a time when nearly all devices are connected wirelessly, communicating with each other” in discussing why CalAmp is his top stock pick of 2014.
! Misperception #2: People feel as if wireless networks could invade their privacy. o Correction: Wirelessly connecting “things” would not cause a substantial amount of more risks than those
that exist in most people’s lives today via phones or computers connected to the internet.
CalAmp Corp. (NYSE: CAMP) VAR
! VAR #1: Bryan, Supply Planning Manager at Cisco Systems (Alexandria, VA) – “What’s key to understand is that networks are extremely important in today’s world. Obviously the internet kicked off the whole networking trend by connecting people wirelessly throughout the world, and now with the software capacity of smartphones people are able to input information with them wherever they go. “The Internet of Things”, however will allow for wireless networks of machines or things so that businesses and consumers alike will be able to access their things easier and more efficiently.”
! VAR #2: Joe, Research Analyst at DRZ (investment firm)(Orlando, FL) – “The whole idea behind M2M interactions has been gaining a foothold in a number of different industries lately. They’re some ridiculous estimates behind the potential number of M2M’s in the next five years or so, and while I’m not sure if it will explode that quickly, they are definitely becoming more popular and will start to phase into many businesses in the near future. The novelty in the concept is wireless efficiency.”
How It Plays Out ! The “Internet of Things” will continue to emerge as a multi-‐market idea that wirelessly connects both business and
consumer networks. As this new market grows, CalAmp will continue to grow and generate sustainable profits through their innovative solutions.
! CalAmp will continue to offer a unique service as they are one of only a few companies that are so vertically integrated in the very specific M2M market; as a result their stock will continue to rise as a great deal of potential remains.
Risks / What Signs Would Indicate We Are Wrong?
! The M2M market will take too long to play out o Buying new things that are wirelessly connected could take a long time to actually go into effect o Some businesses may already have invested in equipment that has yet to depreciate significantly.
! Potential security breaches/lack of privacy o Networks of machines increased connectedness could multiply the potential losses/damage if hacked or
malfunctioning. o People may feel uncomfortable having so many of their things connected by a system they feel could invade
their privacy. o Machines running on their own could complicate the issue of legal responsibility.
! Competition and Commoditization o The potential for such a large market will result in increased competition and could result in CalAmp’s
commoditization if they fail to continue developing customized solutions. ! 6 insiders sold 73,300 shares in January pursuant to a Rule 10b5-‐1 plan, showing a potential slowdown in growth
after a large stock surge. Signposts / Follow-‐Up
! Whether or not CALAMP continues to offer sustainable market-‐beating gains
o As seen through revenue growth, improved profit margins, strength in free cash flow growth over net income growth, and improved EPS.
! The increased number of M2M machines and market growth
o If the market increases on pace with the estimate of 50 billion M2M devices by 2020.
! Polls showing businesses’ willingness to invest in M2M networks based on truly optimized efficiency.
Company Description Founded in 1981, CalAmp (CAMP) is a leading provider of mission-‐critical high value wireless communications solutions that enable anytime/anywhere access. CalAmp’s Wireless DataCom Division services the public safety, industrial monitoring and controls, and mobile resource management market segments with wireless solutions built on communications technology platforms that include proprietary licensed narrowband, standards-‐based unlicensed broadband and cellular networks. CalAmp’s Satellite Division supplies outdoor subscriber premise equipment to the U.S. Direct Broadcast Satellite (DBS) market. CalAmp’s business is 79% wireless and 21% satellite solutions. It went public in 1984, is based out of Oxnard, CA, and its CEO is Michael Burdiek.
CalAmp Corp. (NYSE: CAMP) Exhibit #1 Exhibit #2
CalAmp Corp. (NYSE: CAMP) Exhibit #3 Exhibit #4
