TD Securities Downgrades DragonWave (DRWI) to Hold, Analyst Increases PT

TD Securities downgraded DragonWave (NASDAQ: DRWI) from Buy to Hold with a price target of $2.75 (from $1.00).

Analyst Scott Penner said, "We are moving to HOLD given more confidence in the outlook; however, liquidity concerns persist. The company exited Q1 in a net debt position, with cash of $15.6mm and $17.5mm of borrowings against its credit facility. Management expects to close Q2 with $12mm–$13mm in cash (a covenant stipulates a floor of $10mm). Although the borrowing capacity is expected to increase (currently, the company has borrowed $19mm), the liquidity cushion remains very limited and could constrain future growth. We still see this risk as offsetting the upside potential from current levels."

"We now rate DragonWave HOLD and raise our target price to $2.75 (from $1.00), based on 1.0x EV/Sales applied to our forward expectations. Although this is a premium to peers at 0.1–0.5x, we believe that this valuation is supported by the potential for large deal signings to have a material impact on the company's prospects," he added.

For an analyst ratings summary and ratings history on DragonWave click here. For more ratings news on DragonWave click here.

Shares of DragonWave closed at $2.37 yesterday.

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