Eon Communications Corp. (EONC)

[Rustler]

THE STREET on EONC...

RECOMMENDATION
We rate EON COMMUNICATIONS CORP (EONC) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little [guidance] to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. EONC's strengths can be seen in multiple areas, such as its robust revenue growth, increase in net income, and attractive valuation levels. However, as a counter to these strengths, we also find weaknesses [e.g., below average profit margins and weak operating cash flow].

HIGHLIGHTS
EONC's very impressive revenue growth greatly exceeded the industry average of 15.5%. Since the same quarter one year prior, revenues leaped by 57.3%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share. EON COMMUNICATIONS CORP has shown improvement in its earnings for its most recently reported quarter when compared with the same quarter a year earlier. The company has demonstrated a pattern of positive earnings per share growth over the past two years. During the past fiscal year, EON COMMUNICATIONS CORP turned its bottom line around by earning $0.20 versus -$0.13 in the prior year. Regardless of the somewhat mixed results with the debt-to-equity ratio, the company's quick ratio of 1.37 is sturdy.

POINTS OF CONCERN
Indeed, despite currently having a low debt-to-equity ratio of 0.60, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. The gross profit margin for EON COMMUNICATIONS CORP is currently lower than what is desirable, coming in at 31.70%. It has decreased from the same quarter the previous year. Along with this, the net profit margin of 2.40% significantly trails the industry average. Net operating cash flow has significantly decreased to -$0.04 million or 126.79% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.

-October 30, 2011