Silver Spring Networks' (SSNI) Rating Raised to 'Strong Buy' at Raymond James; Analyst Doesn't See Risk from Brexit, Comments on Rumors

(Updated - June 30, 2016 8:21 AM EDT)

Raymond James upgraded Silver Spring Networks (NYSE: SSNI) from Outperform to Strong Buy with a price target of $16. Analyst Pavel Molchanov tied weakness in shares primarily to multiple compression and said Brexit is not an issue. He also commented on a M&A rumors, saying a buyout at some point is "not far-fetched."

"After peaking last December, SSNI shares are down 27% since that 52-week high (versus the ECO index down 12%), and essentially all of that represents multiple compression," said Molchanov. "Other than the CFO’s departure, there have been no missteps or disappointments year-to-date. On the contrary, backlog is at an all-time high following February’s ConEd mega-contract. In the meantime, we think the stock deserves more of a scarcity premium, following recent buyouts in the space. Finally, while plenty of growth stocks have taken a hit after Brexit, Silver Spring has close to zero risk in this regard."

The analyst continued, "Much of the recent weakness came since the CFO’s departure on June 6 – even though Silver Spring explicitly reaffirmed guidance, directly addressing the common perception that a CFO change means something nefarious. Jim Burns has taken the same post at Accela, a private software company, the latest instance of the game of musical chairs among Silicon Valley execs. We're not fans of this game... but such is life. We've also heard the theory that Burns' departure implies that Silver Spring will not be acquired. Leaving aside the fact that our thesis on the stock has never been premised on a buyout, this theory seems particularly odd after three notable grid tech buyouts in the past year. Finally, if any company can live without a CFO for a while, this is it. Zero debt, no need to tap the markets, and not much roll-up activity."

Molchanov added, "In 2015, Honeywell acquired Elster for $5.1 billion, the largest-ever buyout of a grid tech company, followed this year by Southern Co.’s buyout of PowerSecure and Oracle’s buyout of Opower. These deals involving public grid tech companies are in addition to the many buyouts of private players. What does this tell us? First, large tech and industrial strategics clearly like the theme of grid modernization, both hardware and software. This does not mean that we expect an imminent buyout of Silver Spring, but such a scenario at some point is not far-fetched. Second, the reality is that investors who want to play grid tech have very few public op tions left (i.e., EnerNOC and Itron). If nothing else, SSNI shares should get some uplift from implied scarcity value."

For an analyst ratings summary and ratings history on Silver Spring Networks click here. For more ratings news on Silver Spring Networks click here.

Shares of Silver Spring Networks closed at $10.76 yesterday.

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