Stifel Says Worst Is Over for Mellanox: Israel Overnight

Mellanox Technologies Ltd. will rebound from the biggest monthly slump this year as its Tel Aviv delisting helps lower costs while the global economic recovery boosts demand, the most-accurate analyst says.

Shares of Mellanox, the Israeli maker of equipment that speeds electronic data transfers, slid 0.9 percent last week in New York, extending its monthly drop to 14 percent. The Bloomberg Israel-US Equity Index of the most-traded Israeli shares sank 2.5 percent for the week, led by Partner Communications Co. ClickSoftware Technologies Ltd., whose largest investor is George Soros’s fund, rose 1.3 percent.

Today’s delisting from the Tel Aviv Stock Exchange will help Mellanox save “hundreds of thousands” of dollars in operating expenses each year, Chief Executive Officer Eyal Waldman said in a May 31 interview. The Yokneam Elit, Israel-based company reported July 24 earnings and sales that beat estimates amid growing demand. The U.S. economy expanded more than estimated in the second quarter and the euro-area returned to growth after an 18-month contraction.

“The worst is over,” Kevin Cassidy, an analyst at Stifel Nicolaus & Co., said by phone from Washington on Aug. 30. He ranks first among 18 analysts tracked by Bloomberg covering Mellanox as his recommendations delivered the best relative returns in the past year. “The Tel Aviv exchange doesn’t have much volume and delisting will help cut costs. Demand for data centers is growing and government spending increases as the economy improves.”

Operating Expenses

Mellanox will be “voluntarily” delisted from the Tel Aviv Stock Exchange Sept. 1, the company said in a May 30 statement. Some 20 to 25 percent of Mellanox shares were held in Israel, UBS AG said in a May 31 note. The company reported total operating expenses of $224.6 million in 2012, according to its annual statement released Jan. 23.

Adjusted profit fell 68 percent in the second quarter to $13.8 million, exceeding the $8.46 million average estimate of 13 analysts surveyed by Bloomberg. Sales sank 26 percent to $98.2 million, compared with the $95.6 million average forecast of analysts.

Mellanox has tumbled 34 percent this year on concern revenue will decline amid uncertainties about global growth. It trades at 21 times estimated profit, or 12 percent below its three-year average, according to data compiled by Bloomberg. The stock will jump 43 percent over the next 12 months, according to the average of 13 analysts’ estimates. The shares ended the week at $39.42 in New York while the Tel Aviv stock dropped 0.8 percent to 140.90 shekels, or $38.45.

Chemical Weapons

Israeli stocks joined a slump in global shares as investors weighed prospects for an American military response to a chemical weapons attack in Syria. President Barack Obama will decide on America’s response on the U.S.’s own timeline, Secretary of State John Kerry said last week. U.K. Prime Minister David Cameron failed to gain parliamentary backing for military action.

The Bloomberg Israel-US gauge fell to 95.05 last week, extending a monthly drop to 2.1 percent, the biggest since October 2012. The TA-25 Index gained 0.6 percent to 1,185.11 at the close in Israel following a second week of losses.

Partner tumbled 11 percent, the biggest weekly drop since July 2012, to $7.25. Israel’s second-largest mobile phone provider reported an 83 percent plunge in second-quarter profit on Aug. 28. The Tel Aviv shares today narrowed the discount, dropping 1 percent to 26.61 shekels, or $7.35.

ClickSoftware Technologies, an Israeli software developer, rose to $6.88 in the biggest weekly gain in a month. The rally trimmed its August plunge to 5.2 percent.

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