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% range
annually. 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 2016 in 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
- <$1B (*7): NetGear, D-Link
Key metrics
- EV/EBITDA is second lowest at 5.4x, lowest being Cisco at 5.29x.
o Mean is 13.8x (-61%) and median is 9.56 (-44%).
- Prospective P/E is third lowest at 13.23x, Cisco being one of two lower at 11.46x.
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