By: Matt Tully, AIM student at Marquette
University
Disclosure: The AIM Equity
Fund currently holds this position. This article was written by myself, and it
expresses my own opinions. I am not receiving compensation for it and I have no
business relationship with any company whose stock is mentioned in this
article.
Summary
•
CalAmp Corp. (CAMP) is a company
that offers solutions for mobile resource management, machine-to-machine
communications, and other applications that require connectivity everywhere.
These solutions are provided for energy, government, transportation, and
automotive markets. CAMP operates in two business segments: Wireless DataCom
and Satellite.
•
Strong momentum in the MRM business is continuing, in large part due to an
expanded relationship with Caterpillar.
•
The acquisition of LoJack has not lived up to expectations. However, LoJack
Italy has experienced strong growth in telematics demand.
• The new ASC 606 revenue recognition standard will have effects
on CAMP. These effects still remain unknown as CalAmp does not need to comply
with the new standard until March 2018.
• The auto industry is going through a dramatic change. This
change poses both an opportunity and a threat for CalAmp.
Key points: CAMP reported strong numbers in their third
fiscal quarter ending in November 2017. Sales were $2.2 million above the
consensus due to strong performance in the mobile resource management (MRM)
business. CAMP’s relationship with Caterpillar (CAT) contributed $13.5 million,
which was a 24% increase from 2Q2017. This large sequential increase was in
part because of an expansion of the relationship with CAT as well as a ramp-up
in their business. Because the CAT business is expected to normalize in 4Q2017,
the growth from this relationship will be lower.
In
the initial write-up, the acquisition of LoJack was the top driver for CAMP.
However, it appears that over a year later, LoJack has not contributed as it
was forecasted. LoJack Italy, on the other hand, has driven CalAmps SaaS
revenue by contributing half of the new 24,000 subscribers during 3Q17. The
increase in subscribers is due to a strong telematics demand in Italy.
Because
of CalAmp’s reporting timeframe, they are not required to adopt the ASC 606
until March 1, 2018. CAMP will be compliant by this deadline however it is too
early to tell how this transition will affect CAMP. In my opinion, this change
will have a major impact on reported sales and go-to-market strategies. CalAmp
will also have an additional $1.5 million in general and administrative costs.
In regards to the new tax policy, CAMP is positioned to benefit from the
legislation due to a favorable impact on deferred tax assets.
CAMP
provides proven aftermarket solutions for the 250 million US automobiles
currently licensed. With the auto industry going through a very dramatic
change, there is opportunity as well as threat for CAMP. CalAmp has great
vehicle telematics products that could play a role in this industry change. For
example, CAMP is in great position in terms of the electronic logging mandate,
which is a regulation that will equip all trucks with hour-of-service monitors.
The threat that comes into play are the original equipment manufacturers. Companies
like Tesla, Amazon, and Apple have fully automated cars that already include
solutions that are provided by CAMP in their cars.
What has the
stock done lately?
CalAmp has been rather volatile lately, ranging from $24.76 to
$23.05 over the span of five days at the beginning of February. A driver when
this company was originally pitched was that it was trading near its 52-week
low, hence it was undervalued. Now, the company is trading at $24.41 and its
52-week high is $25.45. I would be interested to see if CAMP can stay close to
its 52-week high the next couple weeks.
Past Year
Performance: CAMP
has increased by 62% over the past year. I think this stock is appropriately
valued as CAMP has seen share appreciation from continued investments to
reaccelerate growth. I also think that CAMP is nearing its peak due to the fact
that the auto industry is under such substantial change. In my opinion, the
change is a bigger threat than it is opportunity for CAMP.
My Takeaway
My takeaway from this research is that CAMP provides incredible
solutions for plenty of different verticals. However, one of their largest
industries, the auto industry, is under immense change that will greatly affect
CalAmp’s growth opportunities. The mobile resource management segment will
continue to grow, but I am skeptical if it can make up for potential losses in
the auto industry. Overall, I am recommending that we sell CAMP from the AIM
portfolio, and enjoy the 80% return on our investment.
