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Bear of the Day

Mellanox Technologies, Ltd. (MLNX - Snapshot Report) delivered mixed fourth quarter results on January 23. Revenue was mostly in-line with expectations, but earnings per share fell well short of the Zacks Consensus Estimate. And the company's Q1 revenue guidance was significantly below consensus, prompting a flurry of negative estimate revisions from analysts. It is a Zacks Rank #5 (Strong Sell).

Mellanox Technologies supplies end-to-end InfiniBand and Ethernet interconnect solutions and services for servers and storage. Fourth quarter revenues surged 68% to $122 million, ahead of the consensus of $120 million. However, the gross profit margin declined 50 basis points quarter-over-quarter to 70.0%. Earnings per share came in at 47 cents, missing the Zacks Consensus Estimate of 55 cents.

On the conference call, management provided weak Q1 revenue guidance, and analysts unanimously cut their estimates for both 2013 and 2014. The 2013 Zacks Consensus Estimate is now $1.43, down from $3.27 before the report. And the 2014 consensus slid from $4.39 to $2.35. It is a Zacks Rank #5 (Strong Sell).

In addition to negative earnings momentum, shares look pricey too. Mellanox now trades at a frothy 36x 12-month forward earnings, well ahead of the industry median of 23x. The stock also carries a long-term 'Underperform' Zacks Recommendation.

Todd Bunton is the Growth & Income Stock Strategist for Zacks Investment Research and Editor of the Income Plus Investor service.

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