Allot’s Record Stock Drop Emboldens Buy Rating at NeedhamLeon Lazaroff
The record tumble in Allot Communications Ltd. is reinforcing Needham & Co.’s buy recommendation on the shares of the Israeli technology company.
Allot, which develops products to track wireless traffic, tumbled 24 percent to $13.85, the biggest slide since the company’s initial public offering in New York in 2006, after Oppenheimer & Co. said sales will miss estimates. The decline sent the Bloomberg Israel-US Equity Index of the largest New-York traded Israeli companies 2.7 percent lower to 86.27. Mellanox Technologies Ltd. retreated to the lowest level since April after cutting its revenue forecast.
Allot, based in Hod Hasharon, Israel, will report fourth-quarter sales of $28.6 million and net income of $5 million, Oppenheimer said in an e-mailed report yesterday, missing the mean estimate for revenue of $31.09 million and profit of $5.5 million by 11 analysts surveyed by Bloomberg. The company stands to gain as wireless carriers such as AT&T Inc. and Sprint Nextel Corp. increase spending on services to help manage traffic, according to Needham, which has had a buy recommendation on the stock since November.
“Even if Allot is a little soft in the fourth quarter and even if the visibility isn’t all that great for the first quarter, the stock is oversold here,” Alex Henderson, an analyst at Needham who has a buy rating on Allot, said by phone from New York yesterday. “The outlook globally for wireless carrier spending in 2013 is a hell of a lot better than it was for 2012. Allot is very well positioned, and yes, you should buy it on the weakness.”
Ten out of the 12 analysts who cover Allot have the equivalent of a buy rating on the stock and their average 12-month price target of $27.6 is double yesterday’s level.
Allot lost 10 percent in Tel Aviv to 61.01 shekels, or $16.26, as Israel’s TA-25 Index dropped 0.9 percent to 1,210.62. The shares’ plunge in New York widened the discount versus the stock in Tel Aviv by the most on record.
Trading volume on Allot shares in New York was more than 17 times the stock’s daily average over the past three months, according to data compiled by Bloomberg.
The company may report that a measurement of future revenue known as book-to-bill was below one in the last three months of the year, indicating that “order patterns have softened,” Ittai Kidron, a New York-based analyst at Oppenheimer, wrote in the report yesterday. He lowered his rating on the shares to the equivalent of hold from buy.
Allot tumbled 33 percent in the fourth quarter in New York on concern a stalemate in U.S. budget talks could push the world’s largest economy into a recession and prompt wireless providers to cut spending on vendor services. U.S. lawmakers passed a budget on Jan. 1, averting spending cuts and tax increases threatening a recovery in the world’s biggest economy.
AT&T’s November announcement that it plans to invest $14 billion over three years to improve the networks that deliver wireless communications, high-speed Internet access and television services will boost Allot’s sales, Needham’s Henderson said. He also expects Sprint Nextel to increase its spending on products offered by Allot following its $20 billion deal made with Softbank Corp. in October.
“By the second, third and fourth quarter of 2013, this category is going to be up and running,” Henderson said.
Mellanox plunged 17 percent to $50.7 in New York yesterday, the lowest since April, after the Yokneam Elit, Israel-based company lowered its fourth-quarter sales forecast to $119 million to $121 million, below revenue guidance issued in October of $145 million to $150 million.
Chief Executive Officer Eyal Waldman said in a conference call with analysts yesterday that the shortfall was due to weaker demand and a technical issue related to cabling for Mellanox’s FDR 56Gb/s InfiniBand product.
Trading volume was seven times the stock’s three-month daily average, according to data compiled by Bloomberg. Mellanox has lost $69 since reaching $119.93 on Sept. 6. Shares in Tel Aviv sank 17 percent to 190.30 shekels, or the equivalent of $50.63.
The forecast cut comes less than three months after Waldman said that $150 million in sales per quarter had become the company’s “baseline.”
“Mellanox was pretty comfortable with the new baseline being around $150 million per quarter,” Shebly Seyrafi, an analyst at FBN Securities Inc. who cut his rating on Mellanox to sector perform from outperform yesterday, said by phone from New York. “The lack of clear statements about fiscal first quarter leads us to believe that the demand issue is playing a large part here.”