Turnaround In Sight For Allot Communications, According To Bank of America

Allot Communications Ltd ALLT, a provider of network intelligence and security solutions for communications service providers and enterprises, reported Q4 results that were largely in-line but provided an upbeat full year 2018 revenue growth guidance.

The Analyst

Bank of America Merrill Lynch analyst Tal Liani upgraded shares of Allot Communications by two notches, from Underperform to Buy, and increased his price target from $5 to $6.10.

The Thesis

The strong 2018 guidance reflected the strong backlog, large orders for security products, and a healthy pipeline for additional potential contracts, Liani said in note.

Liani noted that Security accounted for 30 percent of the company's 2017 revenues, up 42 percent year-over-year. The analyst sees the segment as the primary driver behind the company's profitability roadmap.

The company's pivot from being an appliance-based DPI company to one having a growing share of Security revenues, visibility into a turnaround to profitability and a low valuation were the reasons behind the upgrade, BofA said.

"After three years of negative growth rates, we model ~13% and 14% revenue growth for 2018E and 2019E, driven by strong Security product momentum," the firm said. "Breakeven occurs approximately at achieving $105mn of revenues and we expect the company to hit this level in 2019."

The Price Target

Allot Communications shares were down about 5 percent over the past year.

Reacting to the results, shares were last seen up 4 percent at $5.27.

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