Last week, the stock indices returned to the levels they were at two weeks previously, after a deluxe correction, which means we are going into the reporting season with high expectations. For the first time since the crisis began, investors will not make do with results of the “it could have been worse” variety, and not even with companies meeting estimates, but will want much more than that: growth in sales and profits in comparison with the previous quarter beyond market expectations, and that goes for fourth quarter guidance too.
Last week’s outstanding stock in the portfolio I manage here was without doubt Ceragon (CRNT), which rose by more than 18%. In the past month, it has risen by more than 31%, and I mention this because exactly a month ago, Jim Cramer recommended the stock on CNBC. I wrote at the time that if Cramer recommends a small Israeli stock in a technological niche that not many people understand, then he knows something that the market doesn’t know yet, and on Thursday we found out what he knew then. Whoever listened to him made a nice profit.
Wins in the US from two WiMAX networks currently being set up there, one a small network for mountainous areas being installed by Alvarion (ALVR) as the WiMAX equipment supplier, and the second apparently with service providers Clearwire (CLWR) and Sprint (S), which are jointly building a huge WiMAX network.
As far as the latter network is concerned, Oscar Gruss analyst Jonathan Kreizman estimates that, by the end of 2010, Sprint and Clearwire will cover 80 large cities, including New York, Chicago, and Los Angeles, and he believes that Ceragon can expect revenue of over $20 million next year, compared with a few million this year. On Friday, Kreizman raised his recommendation for Ceragon to “Buy”, with target price of $12, and mentioned fourth generation LTE technology as a big revenue engine in the coming years. Ceragon, it will be recalled, has already been chosen in principle as one of the providers to the LTE network being built by Verizon (VZ), and is waiting for orders.
When Cramer mentioned Ceragon’s name a month ago, he also recommended its American competitor Harris Stratex Networks Inc. (HSTX), whose share price has not risen much since. Then again, there is a third competitor in this market, Dragon Wave (DRGNF.PK) of Canada, which reported third quarter sales more than three times as high as in the corresponding quarter, CA$36 million versus CA$11 million, last week. Its share price rose 20%, making it a rise of more than 52% in the past month. What’s more, the company reported a switch to a profit of more than $6 million, compared with a loss in the corresponding quarter lat year.
Ceragon has carried out many trials for Clearwire’s network, but it turns out that Dragon Wave surprised it when it succeeded in becoming a large provider for this network. In the results it released last week, 77% of its quarterly sales were to Clearwire. Moreover, on the strength of further orders that it will receive from this network, it raised its annual guidance to sales of CA$150 million, from the CA120 million level to which its guidance was raised just a month ago.
On the basis of these numbers from its Canadian competitor, it can be presumed that becoming an additional supplier to the Clearwire network will make a substantial contribution to Ceragon too next year, perhaps much more than the $20 million that Kreizman projects. In my view, Ceragon’s share could also benefit from the fact that Dragon Wave plans a Nasdaq IPO. It filed a prospectus a month ago, and on the basis of the momentum in this area it will probably be received enthusiastically when it makes the IPO in the next few weeks. Then Ceragon, as a larger competitor with technologies considered superior, is likely to enjoy a better p/e ratio than it has to date.
What Google holds for Incredimail
I expect Google (GOOG) to surprise with good results this week. It’s worth remembering that Incredimail (MAIL), which I hold in my portfolio, should benefit from the upside in Google’s sales figures, insofar as this will stem from the average price advertisers were prepared to pay Google in the quarter. In the past few days, many analysts have raised their estimates of Google’s performance, including for the fourth quarter.