'We Are Stepping To The Sidelines': CalAmp Downgraded On Tax Headwinds, Rising Opex

While CalAmp Corp (NASDAQ: CAMP)’s core business will continue to gain traction, tax headwinds and operating expense increases could act as a short-term overhang, according to Craig-Hallum.

The Analyst

Anthony Stoss of Craig-Hallum downgraded CalAmp from Buy to Hold and lowered the stock’s price target from $26 to $24.

The Thesis

CalAmp's significant spending on R&D initiatives for new and existing programs is likely to continue, cutting into margins, Stoss said in a Thursday note. 

“While we are encouraged by CAMP’s efforts to ultimately grow revenue, the incremental cost of each new revenue dollar seems to have trended unfavorably for the company."

CalAmp is also expected to see a steep increase — potentially more than double — in its effective tax rate in 2019 due to recent U.S. tax changes.

International revenue, which accounted for 25 percent of revenue in 2017, is expected to be taxed more due to changes in the U.S. minimum tax rate on international profits, the analyst said.

CalAmp has likely utilized “most or all” of its international net operating losses to reduce its tax burden, said Stoss.

Despite these short-term concerns, CalAmp should continue to see growth in recurring software revenues and the expansion of key customer relationships, presenting the “right” long-term strategy, the analyst said.

“That said, with multiyear tax headwinds for earnings and our uncertainty of when revenue growth can re-accelerate, we are stepping to the sidelines given the current valuation." 

Price Action

CalAmp shares were down 6.42 percent at $23.17 at the close Thursday.

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