Shares of Mellanox Technologies (MLNX) are down $2.75, or 5%, at $48.94, paring some losses after the stock last night was halted and then plunged 24% following a Q1 forecast that missed analysts’ estimates by a wide margin.
The stock has gotten at least two downgrades, that I can see, this morning, with Pacific Crest’s Brent Bracelin cutting his rating to Sector Perform from Outperform, and from Craig-Hallum.
Bracelin writes, “The magnitude and unexpected nature of the decline significantly increases the risk/reward profile on MLNX in the short run, particularly given that operating expenses are now at a $200 million run-rate.”
Bracelin cut his estimate for this year to $440 million in revenue and $1.80 per share in profit from a prior $557 million and $3.56, what he calls a “worst-case scenario.” He sees few “catalysts” on the horizon, adding that “Intel (INTC) entering the 100G market in 2014 does not help.”
“While downside below $27 (10x plus cash) could be limited, we see no catalyst to drive a recovery back to $52 until growth reaccelerates.”
But Piper Jaffray’s Andrew Nowinski today reiterates an Overweight rating, while cutting his price target from $65 to $52, writing that the firm “remain confident in our thesis”:
We continue to believe Mellanox will hold a competitive advantage via its FDR technology and due to management�s decision to accelerate R&D spending this year, will maintain its lead over the competition with the launch of EDR (100GB/s) products in 2014. While we are reducing our price target to $52 to account for modestly lower estimates, we believe the market reaction to the guidance (shares down 20% after hours) is overblown and expect the shares to recover toward our price target over the next 12 months in anticipation of these developments.
Nowinski now projects $450 million in revenue and $1.59 per share in profit this year, down from a prior $583 million and $3.59 per share.
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