'Compelling Long' – Raymond James bullish on Netgear amid Windward stake

Even-driven analysts at Raymond James came out with a bullish view on NETGEAR Inc (NASDAQ:NTGR), a beleaguered maker of networking equipment, after Windward Management, a Florida-based activist hedge fund, recently disclosed a 4.2% stake in the company, and Windward’s CEO Marc Chalfin published an open letter outlining massive value creation opportunities for NTGR.

“A recognized brand that is trading near a 10+ year low” and a stock “forgotten about by investors and even the sell-side” – in their latest note, the analysts largely echo Windward’s sentiment that the company’s COVID-19 misfortunes continue to abate and believe it’s a good time for investors to put NTGR on their “long radar.”

They reiterate key growth drivers and near-term catalysts, first pointed out in Marc Chalfin’s letter:

• Strong cash position and free cash flow generation: at $289M, the current cash pile represents nearly 80% of the company’s market cap, implying very little value for NTGR’s actual business. With management’s guidance of “significant free cash flow in the coming quarters” – Raymond James agree with Windward’s push for a major ($100M+) stock buyback, calling it “one of the best uses of their cash.”
• Solid market position: At current prices, Netgear’s underlying business is priced at next to nothing, even though it remains a market leader with “a ~35% market share in the U.S. Consumer WiFi market.”
• High-margin, fast-growing NFB segment – the company’s “hidden gem.” Raymond James and Windward both agree that the segment alone is “likely worth the entire market capitalization.”
• Qualified New Leadership: Analysts are supportive of NTGR’s new CEO, CJ Prober, who made a tough call to destock. Despite ‘kitchen sinking results,’ they believe the decision “was crucial as it aligns the sell-in with sell-through.”
• Strong macro tailwinds: After facing nothing but headwinds over the past five years, NTGR may finally get two major tailwinds all at once: 1) a looming WiFi 7 upgrade cycle, and 2) potential effects of Routers Act – a Bipartisan bill that may lead to restrictions on or prohibitions of Chinese-made routers.

As such, Raymond James analysts believe Windward’s letter “shed light on the opportunity,” and see Netgear as a “compelling long.” They model “a share price range of $25-35, representing upside potential of over 100% from current levels.”

For more details on Windward’s NTGR thesis, see our breakdown of their open letter, and access exclusive comments made by Marc Chalfin to Investing.com.