Don't Spend A Lot for Allot

Allot Communications Ltd. (ALLT - Analyst Report) will report 1Q08 results on May 14, 2008. It reported weak 4Q07 results that were below our revenue and earnings expectations. ALLT reported an operating loss for the fourth straight quarter on lower revenues and higher than expected R&D costs related to the development of its new service gateway platform.

While the company rebounded to growth in the Americas, it continued to slip on reduced deliveries to tier II operators due to misinterpretation of their demand. With $1.61 of cash per share on the books, we see little upside to the stock at its current price. We are maintaining our lowered revenue and earnings estimates for 2008 although we continue to rate shares of ALLT a Hold.

Shares of Allot Communications are currently trading much 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 69x our 2008 earnings per share estimate of $0.05 per share, or 1.9x our fiscal 2008 sales estimate.

Based on the results of the fourth quarter of 2007, we are concerned about the company's near-term prospects as our estimates are now more back-end weighted. We expect the company to report close to break-even results for the fourth quarter of 2008. 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.

Udayan Mukherjee contributed to this report.

Read the full analyst report on ALLT.