Analysts split as Ceragon beats estimates
CE Unterberg, RBC, and Oscar Gruss reiterated their ratings and raised their target prices and forecasts for the company, but CIBC downgraded the company.
Globes’ correspondent 25 Jul 07 10:48
CE Unterberg Towbin, Oscar Gruss & Co. CIBC World Markets, and RBC Capital Markets have published new reviews on Ceragon Networks Ltd. (Nasdaq: CRNT; TASE:CRNT) after the company beat market revenue and profit forecasts for the second quarter. The company posted a net profit of $2.9 million on $37.3 million revenue for the quarter. The analysts were divided about the results: CE Unterberg Towbin and RBC are the most upbeat, while Oscar Gruss is slightly less so, but CIBC cut its recommendation.
CE Unterberg Towbin admits that Ceragon beat its own forecast of $35 million revenue, although it was in line with its non-GAAP earnings per share (EPS) forecast of $0.11. The investment bank also noted, “Management raised its full year revenue growth guidance to about 40% from 30% growth over 2006. The growth is coming mainly from faster market growth, as the company’s fundamental growth drivers remain strong. Ceragon is benefiting from rapid expansion of wireless networks worldwide, as carriers race to expand basic voice services in emerging countries and add bandwidth in developed regions.”
CE Unterberg Towbin reiterates its “Buy” and raises its price target to $16 from $14. For the third quarter, “We are raising our estimate to revenue of $39 million from $36 million, but keeping our non-GAAP EPS estimate of $0.11. The EPS is held back due to a higher share count, as the stock price is bringing more shares in the money. For 2007, our revenue estimate goes to $151.3 million from $142.9 million and our non-GAAP EPS estimate goes to $0.45 from $0.43. For 2008, we are raising our revenue estimate to $187 million from $170 million and EPS estimate to $0.61 from $0.57. Risks to our outlook include capital spending trends, significant competition, and aggressive pricing by competitors.
RBC says that Ceragon “is music to our ears”, as it reiterated its “Outperform/ Speculative Risk” recommendation and raised its target price to $16 from $12. “Company is executing well on its plan and also benefits from solid industry backdrop. With higher growth rate than peers, we believe Ceragon is gaining share incrementally and visibility and backlog continue to grow. We believe shares will edge higher on continued execution and with the recent surge in valuation we would use buy on dips.”
Oscar Gruss is almost as sanguine, and also admitted that Ceragon’s second quarter results beat its revenue forecast by 6.7%, although the EPS forecast was in line. The investment house reiterates its “Hold” recommendation, and raised its price target to $13.
Oscar Gruss also raised its forecasts for the company. “We are amending our model to reflect the better-than-expected results and guidance. For third quarter of 2007, we expect revenues of $39.5 million (versus our previous estimate of $35.5 million) with non-GAAP EPS of $0.11 (unchanged). For 2007, we expect revenues of $151.8 million with Non-GAAP EPS of $0.44 (versus $140.9 million and $0.43 before). Our model calls for a 20.9% year-on-year top-line growth during 2008, to revenues of $183.5 million and non-GAAP EPS of $0.54 (up from $173.4 million and $0.50, respectively).”
Oscar Gruss also points out risks: “Ceragon’s products have lengthy sales cycles; it typically takes from six to twelve months after the company first began discussions with a prospective customer before they receive an order from that customer. The company outsources all manufacturing processes to contract manufacturers. In light of the significant higher shipments volume, the company may become more vulnerable to shipments timing, quality problems or shortages.”
CIBC predicts that Ceragon will continue to benefit from new technological development in developed markets, an increase in subscribers, and the creation of new networks in developing markets. The investment bank also cites the company’s OEMs and cooperation agreements. However, CIBC says that the company’s revised guidance gives it a net profit multiple of 23 for 2008, which properly reflects the quality of the company’s results. The share, which has soared 150% to $13.70 on Monday, reflects a market cap of $390 million, which CIBS believes is the right price for the company. For this reason, it cut its recommendation from “Outperform” to “Market perform.”
Published by Globes [online], Israel business news - www.globes.co.il - on July 25, 2007
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