Allot Comm's Target Lowered

We expect a break-even in 4Q after Allot Communications, Ltd. (ALLT - Analyst Report) reported third quarter results that were below our revenue and earnings expectations. The company reported an operating loss for the third straight quarter on higher-than-expected R&D costs related to the development of its new service gateway platform.

Shares of Allot Communications are currently trading well below its IPO price of $12 per share, but we believe shares are fairly-valued at these levels given the risks involved with the company at this time. The company is selling at 48.8x our 2008 earnings per share estimate of $0.08 per share, or 1.9x our fiscal 2008 sales estimate.

Based on the results of the third quarter, we are concerned about the company’s near-term prospects as our estimates are now more back-end weighted. We expect the stock to continue to trade sideways until there is more good news from its newest service gateway product, and the current uncertain market has little tolerance for risk.

The company does have over $3.17 a share in cash at the end of the third quarter, so we doubt there is much downside to the current stock price, which is why we are maintaining our Hold rating at this time. We have lowered our target price to $4.10 per share based on the company selling at 2.05x our 2008 sales estimate at this time, until we have better visibility into 2008.

Read the full analyst report on ALLT.