Ness Technologies Inc (NSTC)

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New analyst, new view: Ness stock shoots up on investment rating upgrade


Omri Cohen 05.6.2005 / 09:16

Over five months, Ness Technologies (Nasdaq:NSTC) stock lost 40% of its value, falling far below the $12 share price at which the company had gone public in September 2004. But in the last week and a half, the stock has rallied. At the end of last week it suddenly shot up 13%, and on Friday it gained another 2.2%, rising to $10.30 per share.

No, the company had not announced some striking new policy or plan; Piper Jaffray had replaced the analysts covering the company, and the new one had upgraded the stock to Outperform and raised its 12-month price target from $12 to $14.

Just under a month ago, analysts Brett Manderfeld and Randy Hugen had slashed Ness' price target from $15 to $12, and repeated a chilly Sector Perform rating. Last week the investment bank revealed that coverage had been given to another analyst, William Zinsmeister, who evidently had different feelings about the Israeli software house.

After reexamining Ness' business projections, Zinsmeister reduced his performance forecasts for this year, but on the other hand he raised the investment bank's projections for 2006.

For this year, Zinsmeister estimates, Ness will post 70 cent earnings per share (about $24.9 million) on revenues of $371.1 million. In 2006 it will net 90 cents per share ($32 million) on revenues of $438.3 million, he estimates.

Regarding his investment rating, at present Ness' market cap has fallen below $370 million, Zinsmeister explains. Even a multiple of 15 times the company's estimated 2006 earnings, on which the new price target is based, is cheap among the IT services group. The discount reflects the low visibility of Ness' core business in Israel, and the risks associated with its history of acquisitions.

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