Allot Communications Ltd. fell in New York to trade at the biggest discount to its Tel Aviv shares in three weeks on concern delays in securing contracts and an acquisition announced yesterday will erode earnings.
The Israeli developer of technology used to manage traffic on networks lost 0.4 percent to $24.58 yesterday, trading at a $1.27 discount to the shares in Tel Aviv. Allot tumbled 12 percent last month, the biggest retreat since September. The Tel Aviv shares dropped 5.1 percent to 97.77 shekels, or $24.73, today. The Bloomberg Israel-U.S. equity index of the biggest Israeli companies traded in New York gained 0.2 percent yesterday, extending its July advance to 3.3 percent. Mellanox Technologies Ltd. slumped for the first time in a week.
Chief Executive Officer Rami Hadar told analysts yesterday that Allot is taking longer to complete transactions after the company reported second-quarter sales that beat analysts’ estimates. The Hod Hasharon, Israel-based technology developer also announced the acquisition of Oversi Networks Ltd. for $16 million in cash, its second takeover in the last three months.
“Some investors are not comfortable with an acquisition that is not immediately accretive and also with order activity potentially getting delayed because of overall slowdown,” Jay Srivatsa, the managing director of equity research at Chardan Capital Markets LLC, said by phone from New York yesterday. “People hear the earnings call and wonder how much more upside there is.”
Allot was the second-best performing stock on the Bloomberg Israel-U.S. equity index this year, gaining 62 percent before reporting earnings yesterday. It trades at 40.4 times estimated earnings, compared with the average multiple of 15.9 for peers on the Nasdaq Composite Index.
Allot said second-quarter sales jumped 43 percent to $26.4 million, beating the $25 million mean estimate of 11 analysts surveyed by Bloomberg. The company reported adjusted earnings per share of 15 cents, more than the 14.3-cent mean estimate of nine analysts.
“I am still positive, as they had a good quarter overall and have a healthy pipeline of products,” Catharine Trebnick, an analyst at Northland Securities Inc. who raised her rating on the shares to outperform, said by phone from Minneapolis yesterday. “The reason the stock may have been down is deals are taking longer and they had a second acquisition.”
Pricing negotiations are causing a setback in new contracts, Hadar said on the call yesterday. “Maybe service providers are a little bit more cautious and anxious to optimize capex spending,” he said.
Mergers and Acquisition
The company said it will buy Petach Tikva, Israel-based Oversi Networks, a content delivery technology company, for $16 million in cash. Allot may boost its payment for the acquisition by as much as $5 million depending on the company’s financial performance in 2012.
The deal follows a May merger with Ortiva Wireless Inc., which offers mobile video solutions. La Jolla, California-based Ortiva will contribute as much as $5 million in sales in the second half of 2012, Allot said in a May 1 statement.
“You have to question why a company does an acquisition like this,” Srivatsa said. Why would you “buy another company when the first one is just being absorbed,” he said.
Israel, whose population of 7.8 million is similar in size to Switzerland’s, has about 60 companies traded on the Nasdaq Stock Market, the most of any country outside the U.S. after China. The nation is also home to more startup companies per capita than the U.S.
Mellanox Technologies Ltd., the Israeli maker of technology used to transfer and store data, declined for the first time in a week, falling 1.6 percent to $104.86. Its Tel Aviv shares retreated 2.1 percent to 420 shekels, or $106.22, today.
Mellanox Chief Financial Officer Michael Gray said that the company cannot give forecasts for more than one quarter because of limited visibility into customer orders, the Wall Street Journal reported yesterday.
Cellcom Israel Ltd., Israel’s largest mobile phone provider, surged 5.8 percent to $5.81, the most in three weeks. Its Tel Aviv shares increased 5.6 percent to 23.60 shekels, or the equivalent of $5.97, today. The shares have tumbled 63 percent this year in Israel.
Average revenue per user “will continue to decline,” in the second half of the year for cellular companies, Gilad Alper and Liat Glazer, analysts at Ramat Gan, Israel-based Excellence Nessuah Investment House Ltd., wrote in an e-mailed report dated July 30. “There’s the temptation to start re-investing in these battered names.”
Israel’s benchmark TA-25 Index gained 4.6 percent last month, the biggest climb since October.