Cloud Demand Buoys Radware as Mellanox Rallies: Israel Overnight
Radware Ltd. (RDWR) surged the most in four months in New York on prospects cloud computing demand will boost revenue for the Israeli technology company. Mellanox Technologies Ltd. (MLNX)’s premium to its Tel Aviv shares widened.
The Bloomberg Israel-US Equity Index (ISRA25BN) of the most traded Israeli companies in New York climbed to the highest level in four months on Sept. 21. The measure gained 1.9 percent last week. Radware increased 4.4 percent to $35, the most since May 16. Mellanox, the maker of technology used to transfer and store data, rose 3.6 percent to trade at the biggest premium to the Tel Aviv shares since July 27.
Cloud services spending will reach almost $100 billion in 2016, from about $40 billion this year, Framingham, Massachusetts-based data research firm IDC said in its August report. Radware will benefit from the trend as its virtualized application delivery product will allow the company to boost market share, Needham & Co. said. The developer will probably report a record $34.7 million profit in 2012, according to the mean estimate of four analysts surveyed by Bloomberg.
“This company has a multi-year run ahead of it as the cloud computing market takes off,” Alexander Henderson, an analyst at Needham, said in a phone interview from New York on Sept. 21. “The question becomes who has got the best product in this environment and Radware has that capability and is positioned for the growth in the market.”
The Bloomberg Israel-US Index gained 1 percent to 87.12 on Sept. 21, extending its 2012 gain to 7.2 percent. The benchmark TA-25 index added 0.9 percent today.
Radware reported sales of $46.8 million in the three months ended June 30, up from $41.1 million in revenue in the same period last year.
Its shares slumped 21 percent in the two days after July 24 when Juniper Networks Inc. (JNPR) said that it awarded a $75 million licensing deal to Radware’s competitor, Riverbed Technology Inc. (RVBD), disappointing some investors who expected the Israeli company to get the contract. The rout was excessive, said Henderson, who initiated coverage on Radware with a buy rating last week.
“This company’s margins are expanding consistently and such companies tend to outperform,” he said. “Revenue growth is likely to accelerate beyond what we forecast, in which case there is more upside.”
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 rose 3.6 percent to $111.06 in New York, extending its gain last week to 9.5 percent, the most since the five-day period ending July 27. The shares in Tel Aviv jumped 4.5 percent today to 429.6 shekels, or $110.23.
Jonathan Kreizman, an analyst at Clal Finance Batucha Brokerage Ltd. in Tel Aviv, reiterated his price target of $140 on the shares following a meeting with Mellanox Chief Executive Officer Eyal Waldman, according to a Sept. 19 report.
“Our impression is that strong business momentum continues,” he wrote in the report. “We expect additional upside to sales in the fourth quarter of 2012 with the launch of Windows Server 2012 and the increasingly substantial entry into the storage market.”
Sales will double this year to $532 million, according to the mean estimate of 13 analysts surveyed by Bloomberg.
Barclays Upgrades Cellcom
Cellcom Israel Ltd. (CEL), Israel’s largest mobile-phone provider, rallied 9.6 percent to $8.75 last week in New York. The Tel Aviv shares climbed 4.3 percent today to 33.9 shekels, or the equivalent of $8.7.
The company was the best performer on the Bloomberg Israel- US Index last week after Barclays Plc said a slowing competition in the sector will boost the shares. The bank raised its recommendation on the shares to the equivalent of hold from underweight.
Cellcom and Partner Communications Co., the second-largest mobile-service provider, sank in July after lower-cost operators Hot Telecommunication System Ltd. (HOT) and Golan Telecom Ltd. moved into Israel’s mobile-phone space.
“The disruptive operators miscalculated as they underestimated the sharp reaction,” David Kaplan, an analyst at Barclays, said by phone from Tel Aviv on Sept. 20. “Additional businesses and additional revenue are coming in anyway for Partner and Cellcom. When you lay that over a more stable business than what people were thinking, then things look good.”
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