Sphere 3D Shares Higher Following New Buy Rating, $3 Target

• Ladenburg Thalman analyst Daniel L. Amir initiated coverage of Sphere 3D Corp. ANY with a Buy rating on Tuesday and set a price target of $3.00, which implies an upside of roughly 170 percent from Tuesday’s opening price.
• Amir argued that the company offers an attractive opportunity for small-cap investors looking for a transformation story and a multi-year investment horizon. One element that is central to this story is the company's transition from a hardware-based business to a software-focused one. Moreover, the company's software products are “highly successful” in the container and virtualization markets.

Revenue from software virtualization and applications currently accounts for 48 percent of total sales. Following the line of argument above, Amir expects this figure surge to 76 percent in the next two years. With this transition, given the higher profit profile, the firm anticipates a valuation multiple expansion and better long-term growth prospects.

A few other issues to take into account include:

• Glassware plus SnapCLOUD is addressing a changing software landscape, where companies are moving from expensive solutions like those offered by VMware, Inc. VMW, to less expensive solutions that combine “container,” virtualization cloud and data management.
• The combination of virtualization and cloud/storage provide the company with a very large TAM.
• Given Sphere 3D Corp.’s diversified blue-chip customer base, “the company has significant revenue opportunities as it shifts more focus on virtualization and cloud service,” the report assured.
• As the business model changes, the firm expects revenue and earnings to expand. The analysts are modeling 36 percent revenue growth for 2016.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.