UPDATE: Imperial Capital Initiates Coverage On DSP Group

Imperial Capital initiated coverage on DSP Group, Inc. (NASDAQ: DSPG) Thursday with an Outperform rating and $12 price target.

Analyst Ashok Kumar believed that DSPG "is positioned to return to growth following declining sales in 2010-2013 (-13 percent revenue CAGR), with new product sales potentially offsetting the structural decline in the legacy cordless chipset market.”

Kumar felt that the “primary near-term revenue catalyst is the opportunity in the voice-over-IP (VoIP) segment, with incumbents, Texas Instruments and Broadcom, either exiting the market or harvesting the business. The company has also repurposed its DECT legacy cordless phone platform to the emerging Internet of Things (IoT) market. An Ultra-Low Energy (ULE) version of DECT products could enable DSPHG to gain traction in the home automation and security markets.”

“DSPG has also entered the mobile space through the acquisition of BoneTone Communications in 2011. HDClear, the company’s branded mobile platform, offers noise cancellation and voice enhancements targeting handset OEMs that seek to differentiate their products with improved speech recognition and audio quality,” according to Kumar.

Kumar stated that the $12 price target was “based on a sum-of-the parts analysis. We believe this valuation approach is appropriate as over half the operating expenses are expended to support the new growth opportunities, and our inclusion of $5 cash/share in our analysis provides a valuation backstop.”

DSP Group closed Thursday at $10.92, down 1.36 percent.