Bloomberg News

BofA Says Buy Allot After 58% Quarterly Surge: Israel Overnight

November 23, 2011

Nov. 23 (Bloomberg) -- Allot Communications Ltd. is a buy to Bank of America Corp. even after a six-week rally pushed valuations of the Israeli maker of high-speed networking equipment to four times that of the Standard & Poor’s 500 Index.

Allot rose 2.7 percent to $15.41 yesterday in New York, bringing its advance to 63 percent from a 10-month low on Oct. 3. The climb has boosted valuations to 51 times reported profit while stocks in the S&P 500 Index fetch an average 13 times earnings. Allot’s 58 percent gain this quarter is the biggest among the Bloomberg Israel-US 25 Index of the largest Israeli companies traded in New York. Allot gained 2.6 percent to 57.34 shekels, or the equivalent of $15.21, at the 4:30 p.m. close Tel Aviv, while Israel’s benchmark TA-25 Index declined 0.3 percent.

Allot is benefiting from rising demand for systems that manage traffic on data networks as consumers buy more tablets and smartphones, according to analysts including Tal Liani at Bank of America. Apple Inc.’s sales of iPhones rose 87 percent in the first nine months of the year, while revenue from iPads jumped four-fold.

“People are justifying a high premium because if you look at Web traffic today, it completely exploded,” said Jay Srivatsa, an analyst at Chardan Capital Markets LLC in New York, who has a “buy” rating on the shares. “Even in tough times, people still buy smartphones.”

The Bloomberg Israel-US 25 Index added 0.1 percent yesterday, led by MagicJack VocalTec Ltd. It has fallen 21 percent this year to 81.91. The TA-25 Index has slumped 22 percent this year.

‘Key Customers’

Allot’s gain hasn’t deterred analysts from recommending the stock. Of nine analysts covering the company tracked by Bloomberg, all have either “buy” or “outperform” ratings.

The Hod Hasharon, Israel-based company said third-quarter net income increased to $2.1 million from $800,000 a year earlier as revenue rose 37 percent to $20.1 million.

Allot will probably report adjusted net income of $11.6 million this year, from $4.06 million in 2010, according to the average estimate of nine analysts surveyed by Bloomberg.

“The company offers one of the more advanced solutions in the marketplace, serving key customers like Vodafone Group Plc,” Liani wrote in an initial coverage report to clients on Nov. 21, rating the company a “buy.”

Vodafone, based in Newbury, U.K., is the world’s largest mobile-phone operator.

Allot’s Tel Aviv shares closed at 55.89 shekels yesterday, or the equivalent of $14.92. The 49-cent premium for the New York shares was the second-biggest among the largest dually- traded companies.

MagicJack

Israel, whose population of 7.7 million is similar to Switzerland’s, has about 60 companies traded on the Nasdaq stock market, the most of any country outside North America after China. It is also home to the largest number of startup companies per capita in the world.

Israeli technology companies raised $522 million in capital during the third quarter, $47 million less than in the second quarter, according to the Israel Venture Capital-KPMG Quarterly Survey released Oct. 24.

MagicJack VocalTec, the Israeli company whose founders invented the technology used for making telephone calls over the Internet, known as voice over Internet protocol, gained 4.1 percent yesterday to $22.02.

“MagicJack’s low-cost consumer VoIP service is an especially attractive alternative to traditional telephony service for those consumers with a high long-distance call volume,” Aaron Blazar, the vice president of Boston-based telecom research company Atlantic-ACM, wrote in an e-mailed report yesterday.

The company will see compounded annual growth of 13 percent from 2010 to 2016, he wrote.

Teva Falls

The shekel weakened 0.6 percent to 3.7686 a dollar at 5:13 p.m. in Tel Aviv. The currency has dropped 6.5 percent this year, headed for its worst performance since 2002.

Partner Communications Co. slid as much as 3.5 percent today after it said third-quarter profit fell to 172 million shekels ($46 million) from 309 million shekels a year earlier. The shares of the country’s second-largest mobile-phone provider closed 1.3 percent higher at 36.11 shekels, or the equivalent of $9.57. The U.S. shares fell to the lowest level in seven weeks, retreating 4 percent to $9.48 yesterday.

Teva Pharmaceutical Industries Ltd. retreated 0.5 percent to 143.80 shekels, or the equivalent of $38.13. The U.S. shares advanced 0.4 percent to $38.61 yesterday.

Eli Hurvitz, the former kibbutznik who built Teva Pharmaceutical Industries Ltd. into the world’s biggest maker of generic drugs, died this week.

Hurvitz built Teva from about $30 million in sales in 1976, when he became chief executive officer, to $13.9 billion in 2009, board member Dan Suesskind said in an interview. Hurvitz stepped down as chairman on March 9, 2010, following treatment for an undisclosed illness.

--With assistance from Claudia Maedler in Dubai and Shoshanna Solomon in Tel Aviv. Editors: Brendan Walsh, Glenn Kalinoski, Susan Lerner.

To contact the reporter on this story: Tal Barak Harif in New York at tbarak@bloomberg.net

To contact the editor responsible for this story: David Papadopoulos at papadopoulos@bloomberg.net


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