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Here's Why Mellanox (MLNX) Stock Could Be a Potential Winner

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Of late, shares of Mellanox Technologies, Ltd. (MLNX - Free Report) have been gaining solid momentum. This is quite evident from the company’s rising estimates, strong fundamentals and rising share price.

Notably, the company’s shares have gained 61.7% year over year, substantially outperforming the industry’s rally of 10.9%.

This rally can primarily be attributed to strong customer adoption of the company’s Gigabit EDR solutions in machine learning, artificial intelligence, high-performance computing, database, storage and more. Further, robust demand for Mellanox’s InfiniBand solutions is a key catalyst.

Mellanox reported earnings of $1.25 per share for the second quarter of 2018, which beat the Zacks Consensus Estimate of $1.08 per share and increased from the year-ago figure of 44 cents per share.

Revenues increased 27% year over year and 7% sequentially to $268.5 million, primarily driven by strong adoption of the company’s 25 gigabit per second and Ethernet switch business. Further, revenues surpassed the Zacks Consensus Estimate of $264 million. Additionally, increased adoption and enhanced performance of Mellanox’s products aided the top line.

Encouraging View

Mellanox expects third-quarter 2018 revenues to be in the range of $270-$280 million. The Zacks Consensus Estimates for revenues is pegged at $275.5 million.

For fiscal 2018, the company anticipates revenues to be in the range of $1.065-$1.085 billion. The Zacks Consensus Estimates for revenues is pegged at $1.08 billion.

The Zacks Consensus Estimates for earnings is pegged $4.64 per share for full-year 2018, which represents year-over-year growth of 103.5%.

Growth Prospects

Mellanox has won a contract from a Chinese weather research institute for an undisclosed amount. Per the deal, the company has been selected for its EDR 100 gigabit InfiniBand solutions which will substitute the Omni-Path network in the current data center infrastructure. Institute’s selection of Mellanox’s InfiniBand solution will reinforce its competitive position against Intel’s (INTC - Free Report) Omni-Path solution.

Apart from strong demand for Mellanox’s InfiniBand solutions, the company has won several contracts from the likes of NetApp (NTAP - Free Report) , the University of Toronto and NASA Ames Research Center, which reflects strong demand for its solutions.

The University of Toronto also selected the Mellanox InfiniBand solutions to accelerate its new leading supercomputer in Canada. Earlier, the NASA Ames Research Center selected the company’s EDR InfiniBand solutions along with HPE SGI 8600 liquid cooled platform to expand its “Electra” supercomputing cluster.

Additionally, Mellanox’s collaboration with Microsemi Corporation is also expected to fortify its footprint in the high performance computing market, going forward.

Further, Mellanox launched the Mellanox Hyper-scalable Enterprise Framework for enterprise and private cloud data centers. The company claims it to be industry’s first scalable, open framework. The new framework will enable the organizations to develop a 25G, 50G and 100G hyperscale Ethernet driven network. We believe the improved features will aid Mellanox expand market share.

To Conclude

In the last 60 days, the Zacks Consensus Estimate for Mellanox’s current year witnessed upward revisions. For the current year, five out of six estimates were revised upward, taking the Zacks Consensus Estimate for earnings to $4.64 per share, up from $4.34 per share.

Mellanox also outpaced the Zacks Consensus Estimate in the trailing four quarters, recording a positive average earnings surprise of 16.3%.

Further, it has a long-term expected EPS growth rate of 15%.

We expect the trend to continue and drive the overall financial performance of this Zacks Rank #1 (Strong Buy) stock. You can see the complete list of today’s Zacks #1 Rank stocks here.

Another top-ranked stock in the broader technology sector is Salesforce.com Inc (CRM - Free Report) , sporting the same Zacks Rank as Mellanox.

Salesforce has a long-term expected EPS growth rate of 25%.

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