EZchip Semiconductor Ltd. (EZCH:US) gained the most in a month in New York after Feltl & Co. raised the stock to a strong buy as new products will help the shares rebound from the worst tumble in eight years.
The company, which makes processors that power routers, rose 3.7 percent in the U.S. last week, helped by a 6.7 percent gain on June 17 following the bullish analyst recommendation. The Bloomberg Israel-US Equity Index gained 1.3 percent to a two-month high. Perrigo Co., the largest maker of generic over-the-counter medicines in the U.S., advanced for a third week in the U.S.
EZchip shares are “significantly” undervalued as the Yokneam, Israel-based company has new products that will expand its customer base, according to Jeffrey Schreiner, an analyst at Feltl, who raised his rating from buy. The stock will advance 27 percent in the next 12 months based on analyst projections compiled (EZCH:US) by Bloomberg. It sank 26 percent last year for the worst performance since 2005 amid speculation customers such as Cisco Systems Inc. will start developing their own technology.
Last week’s gain “is more than sustainable and the stocks have been completely undervalued,” Schreiner said by phone from Menlo Park, California on June 19. “The company is also developing new products in the second half of 2014, which we believe will be a contributor to its progress in 2015.”
Schreiner has a price estimate of $31, implying a 22 percent jump from last week’s closing level. The stock is trading at a forward price-to-earnings multiple of 16.5, close to a four-year low. EZchip shares declined 1.3 percent to 87.95 shekels ($25.52) at the close in Tel Aviv today.
EZchip is nearing production on a more powerful line of network processors known as the NP-5, Chief Executive Officer Eli Fruchter said in a May 14 conference call. The company expects to start winning customers for the new chips, which will have a selling price about 50 percent higher than current models, in the second half of the year, Fruchter said. It’s also developing a new line of so-called NPS network processors.
Last month EZchip reported first-quarter income that beat analyst projections. Annual sales, which surged 30 percent in 2013, will grow another 25 percent this year, according to six analyst estimates compiled by Bloomberg. That’s a reversal from 2012, when revenue tumbled 14 percent while adjusted earnings sank 31 percent.
“The business has clearly turned a corner,” Jay Srivatsa, an analyst at Chardan Capital Markets in New York which rates EZchip a buy, said in a phone interview June 19. “As the year progresses and people start to see their customers getting better order patterns and EZchip continuing to post stronger numbers, people will start to believe that the stock is worth a lot more than its current levels.”
EZchip sank 21 percent on Sept. 12 as San Jose, California-based Cisco, which represents about 40 percent of sales, said it will start developing its own processor. The stock rebounded in following weeks as EZchip said that Cisco intends to use the NP-5 in “all key platforms” that use an older version and has not yet made a decision on any network processor beyond NP-5.
Perrigo added 2.5 percent last week, paring its 2014 drop to 6.2 percent. Perrigo and Somerset, New Jersey-based Catalent Inc. reached a settlement with Teva Pharmaceutical Industries Ltd. on June 20 over the generic version of a Teva aerosol product. The Tel Aviv traded shares of Perrigo advanced 1.3 percent to 495.40 shekels today.
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