Orbotech Falls as Mellanox NY Discount Swells: Israel Overnight

The biggest weekly drop in a year for Orbotech Ltd. (ORBK), the Israeli maker of quality-control equipment used for iPhones and iPads, is prompting Oppenheimer & Co. to advise buying the shares.

Orbotech dropped 7.8 percent last week to $9.20 in New York, the biggest decline since the five-day period ending Sept. 10, 2010, pushing its shares to 6.9 estimated earnings, less than half the average multiple of 15 for companies on the Nasdaq Composite Index (CCMP) and below the 8.9 level for the Bloomberg Israel-US 25 Index. The benchmark for the largest New York- traded Israeli companies lost 7.6 percent last week, led by a 14 percent plunge in Mellanox Technologies Ltd. (MLNX)

The Bloomberg Israel-US 25 Index followed global stocks lower as concern deepened that the economic slowdown will overwhelm government efforts to support growth. Shares of Yavne, Israel-based Orbotech can outperform peers as the company benefits from mounting demand for tablets and smartphones, Oppenheimer said.

“Orbotech is very much undervalued,” Srinivasan Sundararajan, an analyst at Oppenheimer in New York, wrote in an e-mailed report on Sept. 22 after the market closed. “If there is one company that indeed inspects each of Apple’s products, it may be Orbotech.”

Apple Inc. (AAPL) said iPhone sales rose 142 percent from a year earlier in the quarter ended June 25, while the number of iPads sold climbed 183 percent.

Statehood

The shekel dropped 1.1 percent versus the dollar last week and closed at 3.7032 per dollar. The currency is down 4.8 percent this year, which would be the worst annual performance since 2005 when it lost 6.1 percent.

The Israeli benchmark TA-25 Index fell 1.7 percent to 1,038.91 last week.

Israeli Prime Minister Benjamin Netanyahu called on Palestinian Authority President Mahmoud Abbas to meet at the United Nations, while reaffirming positions the Palestinians have rejected as unacceptable for any peace deal.

Israel needs “iron-clad” security guarantees ahead of any declaration of Palestinian statehood, Netanyahu told the UN General Assembly on Sept. 23, shortly after Abbas, speaking from the same podium, asked the UN to recognize a Palestinian state.

The Bank of Israel cut on Sept. 22 its forecasts for economic growth this year and next, citing increased uncertainty about the global economy.

Israel’s economy will expand 4.7 percent in 2011 and 3.2 percent in 2012, the central bank said, compared with its Aug. 2 predictions of 4.8 percent and 3.9 percent.

Outperform

Orbotech, the maker of optical inspection and repair tools, derives as much as 60 percent of its sales from printed circuit boards that can be found in laptops, smartphones and tablets, according to Oppenheimer.

Shares of the company will rise 74 percent to $16 in the next 12 to 18 months, said Sundararajan, who initiated coverage of the company with an “outperform” rating.

Orbotech said on Aug. 1 that it expects earnings of as much as $1.80 per share this year, above the $1.69 average estimate of three analysts surveyed by Bloomberg.

Israeli technology companies raised $569 million in capital during the second quarter of 2011, the most in two years and up from $343 million in the same period last year, according to the Israel Venture Capital-KPMG Quarterly Survey released July 13.

Israel’s stock market was upgraded to developed market status by MSCI Inc. in May 2010, the same month the 63-year-old country was accepted to the Organization for Economic Cooperation and Development.

Israel, whose population of 7.7 million is similar to Switzerland’s, has about 60 companies listed on Nasdaq, the most of any country outside North America after China.

Mellanox, Teva

Mellanox fell 14 percent to $30.26 in the past five days, the biggest weekly drop since July 2010. The decline pushed the discount over the Tel Aviv shares to $1.20, the largest spread among the biggest Israeli companies traded in the U.S.

The adapter maker that’s part owned by Oracle Corp. said on Sept. 20 that it plans an offering of 3 million ordinary shares.

Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, lost 8.6 percent to $35.26 last week, the lowest level since March 2007. The Tel Aviv shares dropped 5 percent to 134.40 shekels, or the equivalent of $36.14.

Alon Holdings Blue Square Israel Ltd., the country’s second-largest food retailer, increased for the first week in four, rising 11 percent to $5.86. The Tel Aviv shares added 16 percent to 20.96 shekels, or the equivalent of $5.64.

The U.S. shares retreated 24 percent in the first three weeks of September as protests in Israel fueled speculation the government will take measures that will hurt the company’s profits.

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net

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