CEO Sets Stage For Long-Term Profitable Growth At Digi International

• The share price of Digi International, Inc. DGII has risen 11.43 percent, year to date.
• Stephens’ Tim Quillin has initiated coverage of Digi International with an Overweight rating and price target of $13.
• Quillin believes that the company’s new CEO, Ron Konezny, has “set the stage for long-term profitable growth in the emerging M2M/IoT market.”

Quillin believes that this is the right time to buy into this “management turnaround story,” while expecting the company to witness robust organic sales growth in its M2M product portfolio, as well as strong cash flow generation from its legacy device networking products.

According to the Stephens report, Digi International’s “long track record of providing wired and wireless networking solutions, including well over a thousand custom design projects, should give it a competitive advantage in the emerging machine-to-machine communications market.”

Quillin also believes that the new management has re-energized the company, with the new CEO making a series of strategic decisions that are expected to drive profitable growth, such as refocusing on Etherios, broadening distribution relations and realigning the sales team.

While cellular routers and gateways are likely to be the growth engine for the company, Digi International’s RF expertise is a major competitive differentiator.

“Legacy device networking business appears to be a cash cow,” the report said, given that the company expects gross margins to remain well above 50 percent and a relatively gradual decline in its annual revenue, from the current levels.

Digi International does not intend to sell or close any of this business, although it does expect it to account for a smaller percentage of the revenue, going forward. The company’s balance sheet is “clean and provides strategic flexibility,” Quillin added.