Bloomberg News

Mellanox Premium Over Nasdaq Is Buy to Clal: Israel Overnight

March 22, 2012

Mellanox Technologies Ltd. (MLNX), the Israeli adapter maker trading at its most expensive level ever to the Nasdaq, will extend gains as soaring Web use lifts demand for the company’s products, Clal Finance Brokerage Ltd. said.

Mellanox, which makes technology used to transfer and store data, climbed 4.3 percent to a record $40.52 in New York yesterday, pushing valuations to 28 times estimated earnings, exceeding the 16.5 average for companies on the Nasdaq Composite Index by the most ever, data compiled by Bloomberg show. The advance bolstered gains in the Bloomberg Israel-US 25 Index (ISRA25BN) of the largest Israeli companies traded in New York, which added 0.9 percent yesterday. Mellanox lost 1.3 percent in Tel Aviv today.

With customers including International Business Machines Corp. and Oracle Corp. (ORCL), Mellanox is benefiting from rising demand for faster data transfer systems, according to Clal Finance and Think Equity LLC. Global Internet traffic jumped eightfold over the past five years, and will rise fourfold by the end of 2015, according to Cisco Systems Inc. (CSCO) Oracle, the largest maker of database software, reported a 62-cent profit per share that beat the 56-cent average analyst prediction.

“Mellanox is going to take quite an active role in big data, which is beginning to emerge as a very hot industry,” Jonathan Kreizman, an analyst at Clal Finance who recommends buying the shares, said by phone yesterday from Tel Aviv. “Handling huge tracks of data requires fast interconnections which is what Mellanox offers. A lot of the hype around Mellanox is associated with this theme.”

Oracle Earnings

Redwood City, California-based Oracle reported fiscal third-quarter profit and new license sales that beat analysts’ estimates as demand for programs that help companies organize data and run operations improved.

Oracle’s revenue from Exadata, a database appliance in which Mellanox technology is involved, doubled during the quarter, the company said.

“We view the renewed confidence at Oracle in the company’s ability to accelerate the engineered systems business as incrementally positive for Mellanox,” Rajesh Ghai, an analyst at Think Equity in San Francisco, wrote in an e-mailed report yesterday.

Ghai, who recommends buying shares of Mellanox, lifted his share price estimate to $43 from $38 following Oracle’s earnings.

Mellanox shares in Tel Aviv dropped to 150 shekels, or the equivalent of $39.98, today. The technology developer is the best performer on the Tel Aviv benchmark TA-25 Index (TA-25) over the past year.

‘Exponential Growth’

The company, whose products are used at data centers, investment banks and stock exchanges to transfer and store data quickly, will probably report profit this year that tripled to $28 million, according to the mean estimate of three analysts surveyed by Bloomberg.

The area of so-called big data, where specialists mine and make sense of the constantly-expanding information available via the Internet, is expanding with more companies hiring for these positions, Progressive Policy Institute in Washington said at the beginning of the month.

Cisco, the world’s largest maker of networking equipment, estimates that by 2015 the data equivalent of all movies ever made will cross Internet networks every five minutes. How to manage all that data is what will be driving technology mergers and acquisitions in 2012, according to market researcher IDC.

‘New Reality’

“There’s a new reality that many enterprises are coping with, with the exponential growth in data and with cellular devices running around and producing very large sets of data,” Kreizman at Clal Finance said. “Mellanox is positioned to take a big role in this market.”

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.

Teva Pharmaceutical Industries Ltd. (TEVA), the world’s largest maker of generic drugs, advanced 0.5 percent to 161.40 shekels, or the equivalent of $43.08, in Tel Aviv today after the New York shares gained 0.4 percent to $43.21 yesterday.

The Petach Tikva, Israel-based company will transfer the listing of its American depositary receipts to the New York Stock Exchange from the Nasdaq, according to a statement yesterday. Teva will begin trading on the NYSE on May 30 under the same stock symbol, TEVA.

Nice ‘Rediscovery’

Nice Systems Ltd. (NICE), the Ra’anana, Israel-based maker of digital surveillance and monitoring systems, climbed 4.3 percent to $37.98, the highest level since May 4, 2011. The company’s Tel Aviv shares rose 2.8 percent to 141.5 shekels, or $37.77. The New York shares had closed at a premium of $1.19, the biggest among dual traded companies.

“There’s a rediscovery among investors on the name,” Daniel Ives, an analyst at FBR Capital Markets & Co., said by phone from New York yesterday, referring to Nice. “The company has done the right things. From a valuation perspective, it’s a cheap stock relative to how much they can grow.”

MagicJack VocalTec Ltd. (CALL), the Israeli company whose founders invented the technology used to make phone calls over the Internet, gained 1.2 percent to $26.76.

Netanya, Israel-based MagicJack said its magicJack Wi-Fi chipset tested positively based on a prototype, according to a Globe Newswire statement yesterday.

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: Emma O’Brien at eobrien6@bloomberg.net


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