Mellanox Technologies Ltd. (MLNX) is trading at the highest-ever premium to companies on the Nasdaq Composite Index as investors bet that demand for faster data transfer systems will help boost revenue.
Shares of Mellanox, an Israeli adapter maker partly owned by Oracle Corp. (ORCL), surged 16 percent in New York yesterday, sending valuations to 25.1 times estimated earnings, while the average for Nasdaq index companies is 15, data compiled by Bloomberg show. The 66 percent premium is the highest since January 2011. The Bloomberg Israel-US 25 Index of the largest U.S.-traded Israeli companies fell 1 percent, led by SodaStream International Ltd. (SODA)
Fourth-quarter revenue rose 79 percent, Mellanox said yesterday, as the company continued to receive orders for equipment that helps companies including International Business Machines Corp. and Hewlett-Packard Co. move data more easily over networks. Global Internet traffic jumped eightfold over the past five years, and will increase fourfold by the end of 2015, according to Cisco Systems Inc.
“Data is seeing exponential growth driven by mobile devices and Mellanox is positioned very well,” Jonathan Kreizman, an analyst at Clal Finance Brokerage Ltd., said by phone from Tel Aviv yesterday. “This is why we think the multiples are justified.”
The Bloomberg Israel-U.S. Index (ISRA25BN) has gained 9.4 percent this year, outperforming the Nasdaq Composite Index’s (CCMP) 7.7 percent advance and the Standard & Poor’s 500’s 4.8 percent increase. A 13 percent jump in Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, has helped drive the Israel-US 25 higher. The Tel Aviv benchmark TA-25 stock index rose 1.5 percent to 1,130.25 yesterday.
Sales by Yokneam Elit, Israel-based Mellanox surged to $72.7 million, exceeding the $71.4 million estimate that was the average of 10 analysts’ forecasts compiled by Bloomberg. Adjusted earnings of 31 cents a share topped the average analyst estimate of 29 cents, the company said.
Mellanox forecast first-quarter revenue of $81 to $82 million yesterday, above the 75.5 million average estimate of nine analysts on Bloomberg before the outlook was released. The company reported sales of $55 million in the first quarter of 2011.
Clal Finance’s Kreizman raised his share-price estimate for Mellanox on Jan. 25 to $44 from $40. Barclays Plc and Harel Finance Ltd. also boosted their price targets for the shares.
“The company’s guidance for the first quarter of 2012 implies a yearly growth of around 30 percent in terms of revenues,” Kreizman said. “There are not that many companies out there growing at these levels. It’s quite an exclusive story in terms of growth.”
Mellanox dropped 6.8 percent on Jan. 23, the most since September, after Intel Corp. (INTC), the world’s largest semiconductor maker, said it will buy QLogic Corp. (QLGC)’s InfiniBand assets, boosting competition for the Israeli adapter maker. Mellanox controls 85 percent of the market for InfiniBand, a technology used in data centers, according to Kevin Cassidy, an analyst at Steifel Nicolaus & Co. in New York.
“Mellanox has a year lead on QLogic in terms of its technology,” Brian Freed, an analyst at Wunderlich Securities Inc. in Denver. In the near term, Intel’s entree into the market “won’t have much of an impact. It may change the dynamic of the competition in the future,” Freed said.
Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than in the U.S.
‘Willing to Do More’
The shekel gained for a fourth day, climbing 0.2 percent to close at 3.7558 per dollar, the strongest level since Dec.7.
Bank of Israel Governor Stanley Fischer said yesterday that the central bank is open to lowering interest rates further if economic growth eases.
“We are following developments in the international economy and in our economy, and if we see growth slowing we will be willing to do more,” Fischer said in an interview with Bloomberg Television at the World Economic Forum in Davos, Switzerland. “If it stays roughly where it is, the need to do more will be a little less.”
The Bank of Israel monetary committee, led by Fischer, cut the benchmark interest rate by 25 basis points, or 0.25 percentage point, to 2.5 percent on Jan. 23, the third reduction in five months. The loosening trend puts it among emerging markets such as Brazil, Indonesia and Russia, who have all cut rates to insulate their economies from a global slowdown.
SodaStream, the Airport City, Israel-based maker of homemade soda machines, dropped 4.3 percent to $36.75 yesterday, the lowest level since Jan. 9. Green Mountain Coffee Roasters Inc. (GMCR), a Waterbury, Vermont-based maker of home coffee-making machines that often trades in tandem with SodaStream, also slipped in U.S. trading, falling 3.3 percent to $49.34.
Esio Beverage Co., a drinks-system maker of hot and cold beverages, said it may begin selling a single-serve beverage machine this year at retailers, including Wal-Mart Stores Inc.
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