The Nasdaq is the natural home for many technology stocks. Last year investors in tech shares had a particularly happy time. From the beginning of 2013 to the beginning of March this year, the Nasdaq Composite Index climbed 45% to 4,350 points — a height not seen since April 2000.
The Nasdaq has seen plenty of profit taking in the two months since, and the index has fallen about 6%. Most of the losses have been in fresh, fashionable stocks in the Internet and social-networking sectors.
But despite the recent sell-off, business looks good in the long term for technology companies traded in the United States. The U.S. economic recovery is based significantly on technological innovations, and many firms that cut back on investments during the recession are now opening their wallets.
The positive atmosphere may very well have an effect on Israeli tech stocks, which are listed on the Nasdaq in droves. Most of these companies have already published their financial results for the first quarter, not to mention their full-year forecasts.
The research department at the Oppenheimer investment bank, which has followed Nasdaq-listed Israeli stocks for years, has updated its forecasts for certain companies based on their latest financial reports. Oppenheimer held its 15th Annual Israeli Conference at Tel Aviv’s David Intercontinental Hotel on Sunday.
Oppenheimer draws conclusions on five Israeli tech stocks: Profit taking on Check Point Software Technologies has put it at attractive levels, Orbotech and Amdocs are attractive value investments, and AudioCodes is expected to gradually improve. But Oppenheimer is significantly lowering its forecasts for Ceva.
Check Point: An attractive point of entry
Check Point, headed by CEO Gil Shwed, is a world leader in Internet and network security. It produced good first-quarter results and reiterated its 2014 forecasts. The company is enjoying double-digit growth in the United States as well as growth in its Blade architecture business, encryption technology for thwarting hackers. But the firm has run into weak markets in Europe and Asia.
Oppenheimer notes that Check Point’s U.S. business is growing greater than 20% annually, despite fierce competition. The analysts expect Check Point to show lower growth than its young competitors — which largely operate in the United States — but this is mostly due to factors linked to the overall economy.
Oppenheimer gave the share a $75 target price, 19% above current levels. Check Point had first-quarter cash flow from operations of $172 million and spent $183 million buying back shares. Its $3.66 billion in cash on hand represents 28% of its $12 billion market value.
Oppenheimer says Check Point’s price-earnings ratio is low for the industry, 12 to 13, depending on the forecast. The analysts expect the share to rise along with Check Point’s growth in the second half of the year.
Orbotech: A value investment
Orbotech, headed by CEO Asher Levy, is a world leader in automatic optical systems for inspecting printed circuit boards and flat-panel displays. Its first-quarter numbers reflected growth due to capital investments in the electronics industry, particularly in China.
Orbotech trades at a P/E of 8 to 9.5 — after factoring out its cash — low for the tech sector. Oppenheimer says the weakness in the printed-circuit-board sector was offset by higher-than-expected growth in flat-panel displays — and it’s now generating its first revenues in its solar-energy business.
Orbotech expects significant revenue growth in the second half of the year, said Oppenheimer, which gave the share an $18 target price, compared with the $14.60 at the time of the report.
AudioCodes: Improving in the second half
AudioCodes, headed by CEO Shabtai Adlersberg, provides Voice over Internet Protocol communications systems. In the first quarter it expanded sales of its new products — with higher profit margins.
But AudioCodes’ operating expenses also rose, though this was partly due to the weakening dollar and higher costs for sales support. The company expects a significant improvement in its numbers for the second half and 2015, when its investments in new products and sales efforts bear fruit.
Oppenheimer cites these factors and a stronger balance sheet after the company’s latest fund-raising round. But the analysts note the strong shekel and the weakness in the Russian market. They said AudioCodes’ growth depended on adding manpower in R&D and sales. Oppenheimer is encouraged by the company’s quality of management and expects a gradual improvement based on the new R&D investments.
Amdocs: Another value investment
Software billing giant Amdocs published better-than-expected results in the recent quarter, with 5%-to-8% revenue growth forecast for this year and 6% to 9% for earnings per share.
Amdocs, led by CEO Eli Gelman, renewed is contract through 2022 with Sprint, the third largest telecom provider in the United States. That company is responsible for around 10% of Amdocs’ revenues.
Oppenheimer notes that Amdocs’ P/E ratio — after factoring out cash on hand — is around 12.5 and 11.5 for 2014 and 2015, respectively. The analysts called Amdocs an attractive value investment based on its stable business profile, market leadership and shareholder-friendly policy.
Amdocs’ dividend policy represents a 1.3% annual yield; it paid 15.5 cents for the first quarter. It had operating cash flow of $131 million, a 9% annual increase, and $1.1 billion in cash on hand, worth about 14% of its market value. It bought back some $85 million worth of its shares in the quarter, and Oppenheimer has given the stock a $52 target price, around 10% above current levels.
Ceva: Oppenhiemer lowers its forecasts
Ceva develops tools for crafting digital signal processing chips; it also sells technology licenses for developers — mostly for mobile phones. Its first-quarter results were good and beat analysts’ forecasts. But the company lowered expectations for the second quarter as its customers suffered a drop in sales of second-generation phones.
Oppenheimer says sales growth in third- and fourth-generation smartphones by Ceva’s customers will help it improve in the second half and beyond. But for now, Oppenheimer recommends that investors wait for recovery signs before investing.
Ceva has lots of cash sloshing around, $153 million, about half its market cap of $300 million. This provides a floor for the share price.
Oppenheimer said it was significantly lowering its 2014 and 2015 forecasts, though the updated forecasts of 30 cents for EPS and $47 million for revenues were conservative and don’t include the potential for royalties from new customers. Oppenheimer gave the share a lukewarm recommendation: market perform, without a target price.
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