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Christopher Ng Oct 1, 2014

Company: NetGear, Inc. (NASDAQ: NTGR)

Date: October 1, 2014

Verdict: BUY Target 36.00, Exit 29.72

Business Description

- NetGear is a global networking company.

- Serve the retail, commercial, and service provider market.

- Retail: provide home networking, home video monitoring, storage and digital media products.

- Commercial: target small and medium enterprises with business networking, storage and

security solutions.

- Service providers: provide made-to-order home networking hardware and software solutions as

well as 4G LTE hotspots to service providers for sale to their subscribers.

Macro

-

Computing devices, such as smartphones, laptop and tablets, are growing in the 20% rangeannually. Demand for networks, like WiFi and NFC, should tag along.

- Internet of Things is a huge opportunity for the networking sector, as home appliances require

built in networking hardware to be interconnected in a shared space of internet and data.

- Increased demand for security products: Palo Alto Network projected a market growth from

$10B in 2012 to $13.4B by 2016in its IPO filing, equivalent to 7.6% CAGR.

- Data centre and cloud storage: internet leaders like Amazon, Facebook and Google increased

their CapEx on data storage at a 29.6% CAGR from 2010 to 2013.

-

Other favourable trends include Smart TV, streaming entertainment

Fundamentals

NetGear

Market Cap $1.149B EV $906MM

Est. P/E 13.23x Est. EV/EBITA 5.4x

Est. EPS Growth 40% Est. EBITDA 42%

Sales Growth 7.68%

Comparables

13 comp companies, classified into 3 groups by EV:

-

$100B (*1): Cisco-

>$1B (*5): Juniper Networks, Aruba Network

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8/11/2019 NTGR 20141001

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Christopher Ng Oct 1, 2014

o Mean is 23.47x (-44%) and median is 20.24x (-35%).

- FCF Yield 4.54% is 129% higher than the sector average of 1.98%

Technical

-

1 year price chart is mountain like, now at a trough again.

-

52 week low at 28.21 but 9-month floor is at 30.78-31.30. Now at 31.61.- 52 week high of 36.27 was reached twice, in late March and early July. (+14.7% from current

price)

- Usually move from trough to peak in 1 month, move from trough to trough in 2 to 3 months

Potential downside

- Highly competitive landscape

o

Giants like Cisco, HP, even Apple (in consumer market)

o

Other consumer electronics vendors up & coming (e.g. Microsoft, Samsung)

-

Rapidly changing technology