Mellanox Technologies Ltd. surged to its highest in three months as analysts from Lazard Capital Markets LLC to JMP Securities LLC said the six-month rout that made the company the worst performer among Israeli stocks traded in New York was overdone.
The shares of the maker of data transferral and storage software climbed 5.3 percent to 236.1, or the equivalent of $64.2, the highest level since Dec. 20, at 10:37 a.m. in Tel Aviv. The U.S.-traded shares jumped 14 percent to $65.55 yesterday, the steepest advance since July 19. The company led gains on the Bloomberg Israel-US Equity Index of the largest Israeli stocks in the U.S., which rose for a sixth day in the longest stretch of gains since November.
Lazard Capital boosted Mellanox’s price target by 11 percent yesterday, saying concerns over competing technology from Intel Corp. have been “overblown.” Lazard Capital expects 2013 sales to be as much as $459 million, above the $451 million mean of 14 analysts’ estimates. Mellanox sank 57 percent in the six months to March 6, the biggest decline on the Israel-US gauge, on concern rivals will take market share and as management issued two sales forecasts below analyst projections.
“The company has lowered expectations to the point where we only go up from here,” said Shebly Seyrafi, an analyst at FBN Securities Inc. in New York who rates the stock the equivalent of hold. “Mellanox has explosive potential.”
Stock of Mellanox will climb 20 percent to $69 in the next 12 months from its March 11 close, according to Daniel Amir, an analyst at Lazard Capital in San Francisco, who boosted his price estimate from $62 yesterday. Amir is predicting revenue for this quarter of $80 million, in line with the mean of 14 analysts’ estimates compiled by Bloomberg.
“We’re anticipating that business could be better than expected for the second quarter,” Amir said in a phone interview yesterday. “Shares have been under significant pressure in the past. We’re expecting potentially better business prospects.”
Alex Gauna, an analyst at JMP Securities, was the first to upgrade his recommendation on Mellanox in a year, saying last week that the company could maintain its competitive advantage versus Intel, Broadcom Corp. and Cisco Systems Inc. through 2015 as demand from data centers for its technology grows.
Mellanox forecast Jan. 23 first-quarter sales that trailed analysts’ estimates by as much as 48 percent amid a build-up in inventory by one of its customers. Sales for the three months ending this month will reach $78 million to $83 million, the company said. Earlier in January, Mellanox cut its fourth-quarter revenue forecast on weaker demand and a product glitch.
Intel acquired QLogic Corp.’s product, which rivals Mellanox’s technology, for $125 million in February 2012. Competition over the next few years will be the biggest threat for the company, according to Castle Union LLC.
“The economics are going to get worse for them even if demand increases because InfiniBand is a niche market,” Toan Tran, a managing partner at the Chicago-based hedge fund, said by phone yesterday. “It’s just a matter of when people start discounting what happens with Intel.”