Market Overview

Mellanox Is 'Underappreciated,' BofA Says In Bullish Initiation

Share:
Mellanox Is 'Underappreciated,' BofA Says In Bullish Initiation
Related MLNX
71 Biggest Movers From Friday
56 Stocks Moving In Friday's Mid-Day Session

Shares of Mellanox Technologies, Ltd. (NASDAQ: MLNX), a supplier of computer networking products, have added over 10 percent year-to-date. The shares have 47-percent incremental upside potential, in Bank of America Merrill Lynch's view.

The Analyst

Analyst Vivek Arya initiated coverage of Mellanox with a Buy rating and $105 price target.

The Thesis

Mellanox is uniquely positioned to benefit from secular data growth, as it supplies high-performance interconnect solutions with a total addressable market of over $10 billion, as well as high-speed ethernet solutions for data centers, which is a smaller market, Arya said in the Wednesday initiation note. (See his track record here.) 

Mellanox has less than 10-percent market share in ethernet solutions, the analyst said. 

Arya is of the view that the Street is underestimating Mellanox's potential to grab market share in ethernet, which will likely lead to 15-percent growth — outperforming the 5-10-percent growth of the overall semiconductor industry.

Israel-based Mellanox is among the few semi names that are immune to both direct tariffs and industry cyclicality, giving it a rare positive bias in the near term, Arya said.

The company is required to hit certain operating margin targets or risk a loss of another board seat, according to its agreement with activists.

"Trading at just 15x, 30 percent below prior levels (of 20x since 2010) and data center peers at [greater than] 20x, we believe MLNX's near-term upside and long-term potential to generate $8-plus in EPS by 2020E is underappreciated," Arya said. 

Mellanox could benefit from potential industry consolidation, the analyst said. 

The Price Action

Mellanox shares were down 0.33 percent at $71.22 at the time of publication Wednesday.

Related Links:

From Facebook To Netflix: The S&P's Big Sector Shakeup, Explained

The Communication Services Sector Is Almost Here

Photo by Cecetay/Wikimedia. 

Latest Ratings for MLNX

DateFirmActionFromTo
Dec 2018JefferiesMaintainsBuyBuy
Oct 2018JP MorganUpgradesNeutralOverweight
Oct 2018Bank of AmericaInitiates Coverage OnBuy

View More Analyst Ratings for MLNX
View the Latest Analyst Ratings

Posted-In: Bank of America Merrill Lynch Vivek AryaAnalyst Color Price Target Initiation Analyst Ratings Best of Benzinga

 

Related Articles (MLNX)

View Comments and Join the Discussion!

Latest Ratings

StockFirmActionPT
DLTRBernsteinUpgrades0.0
CNPUBSUpgrades34.0
UGIUBSDowngrades63.0
ATOUBSDowngrades106.0
CSCONomuraDowngrades50.0
View the Latest Analytics Ratings
Don't Miss Out!
Join Our Newsletter
Subscribe to:
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Daily Analyst Rating
A summary of each day’s top rating changes from sell-side analysts on the street.
Fintech Focus
Your weekly roundup of hot topics in the exciting world of fintech.
Thank You
for registering for Benzinga’s newsletters and alerts.
• The Daily Analysts Ratings email will be received daily between 7am and 10am.
• The Market in 5 Minutes email will be received daily between 7am and 8am.
• The Fintech Focus email will be received every Friday between 2pm and 5pm.

JPMorgan: 4 Positives At Dropbox Investors Are Overlooking

A Pleasant Surprise Among Leveraged ETFs