May 6, 2015 / 7:04 PM / in 2 years

Security camera maker Avigilon's shares drop on spending concerns

(Reuters) - Shares of Canadian security camera maker Avigilon Corp (AVO.TO) fell as much as 28.5 percent on the Toronto Stock Exchange on Wednesday after the company reported a big jump in research and development costs, raising concerns about 2015 earnings.

Shares of the company, which reported a weaker-than expected quarterly profit on Tuesday, touched a seven-month low of C$14.83, and least four brokerages cut their price targets.

BMO Capital Market also downgraded Avigilon to “market perform” from “outperform”, saying the Vancouver-based company’s earnings quality had deteriorated due to high R&D and operating expenses. BMO cut its price target to C$22 from $C25.

R&D costs will keep a lid on Avigilon’s profit in 2015, Raymond James analysts wrote in a note to clients, cutting their price target to C$24 from C$29.

Surveillance cameras are rapidly becoming commoditized, the analysts said, noting that prices on cameras made by Chinese companies such as Hikvision, Vivotek and Uniview are 30-40 percent cheaper than similar products made by Avigilon.

Avigilon reported a 46 percent jump in R&D expenses in the first quarter ended March 31, while total operating expenses jumped 70 percent to C$40 million ($33.2 million).

The company, which has a plant in Vancouver, will open a factory in Texas later this year.

Excluding one-time items, Avigilon earned 17 Canadian cents per share, below the average analyst estimate of 20 Canadian cents, according to Thomson Reuters I/B/E/S.

Revenue rose more than 35 percent to C$75 million, but fell short of the average analyst estimate of C$78.2 million.

National Bank Financial cut its price target to C$20 from C$25 and PI Financial to C$29 from C$32.

Up to Tuesday’s close, Avigilon’s stock had fallen 22.5 percent in the past 12 months.

Reporting By Shubhankar Chakravorty; Editing by Ted Kerr

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