Verizon’s Internet Victory Sparks Allot Rally: Israel Overnight

Jan 19, 2014 11:09 am ET

Jan. 19 (Bloomberg) -- Allot Communications Ltd., the Israeli maker of technology used to track wireless traffic, rallied for a third straight week after a U.S. court ruling on Internet usage opened up new markets for the company.

Shares of Hod Hasharon, Israel-based Allot climbed 7.6 percent last week to $16.44. The stock traded 37 times estimated earnings on Jan. 15, the highest in 15 months. The Bloomberg Israel-US Index of the largest Israeli companies traded in New York climbed 1.1 percent as ClickSoftware Technologies Ltd. surged 25 percent.

Allot, whose technology lets carriers sort network traffic better by knowing what’s being sent, stands to benefit after a U.S. court threw out a rule requiring broadband providers to treat all traffic equally. Carriers from Verizon Communications Inc. to AT&T Inc. are likely to use Allot’s technology to better monetize their networks, Jefferies Group LLC and Wedbush Securities Inc. said.

“This will create a pretty big opportunity in the U.S. for both Allot and its competitors,” Sanjit Singh, a New York-based analyst at Wedbush Securities, said in a Jan. 16 phone interview. “Service providers will be able to use deep packet inspection to manage different online content differently, something they were unable to do before.”

The U.S. Court of Appeals in Washington on Jan. 14 sent the rules governing what’s known as net neutrality back to the Federal Communications Commission, saying the agency overreached in barring broadband providers from slowing or blocking selected Web traffic.

Price Estimate

Allot’s U.S. shares jumped 9.5 percent after the ruling was announced to $17.06, the highest level in more than a year. The shares declined 1.1 percent on Jan. 17 to $16.44.

Jefferies raised its price estimate for Allot’s U.S. shares to $20 from $17 following the court decision and reiterated its buy rating on the stock, according to a Jan. 16 report.

Amy Farrell, a spokeswoman for Allot, declined an e-mailed request for comment on Jan. 17.

“For years we’ve been going after this market, net neutrality has slowed us down,” Rami Hadar, Allot’s chief executive officer, said on a Oct. 29 earnings call with investors. “The EU issued their draft on net neutrality, which I believe is very favorable to our propositions, including the enablement of application-based charging and revenue share. I hope that the U.S. takes a similar approach.”

‘Not Definitive’

It’s too soon to tell whether Allot will be able to capitalize on new demand from U.S. carriers because the legal battles between broadband providers and the FCC probably aren’t over, said Matthew Robison, an analyst at Wunderlich Securities Inc. in San Francisco.

“This is a step along the way, and it’s a positive step, but it’s not very definitive,” Robison said in a Jan. 16 telephone interview.

The FCC will fight to preserve open Internet rules after the U.S. Court of Appeals sided with Verizon, FCC Chairman Thomas Wheeler said in a Jan. 16 speech in Washington.

Allot’s revenue will rise 24 percent to $120 million in 2014 from 2013, according to Robison, who raised his price target to $18 from $16 on Jan. 3. That compares with a sales growth of 20 percent to $115.5 million for 2014, according to the mean of 10 analyst estimates compiled by Bloomberg.

Allot will reap the benefits of efforts to diversify its products beyond the traffic management applications that depend on a favorable net neutrality ruling, Robison said.

“What Allot’s doing for their customers has gotten a lot broader over the last year, so their visibility for growth is much improved from where it was a year ago, and that’s not dependent upon U.S. operators.”

The Bloomberg Israel-US gauge rose 1.1 percent to 113.96 last week. That compares with a 1.9 percent gain for Israel’s benchmark TA-25 Index.

ClickSoftware, the Israeli developer whose largest investor is George Soros’s fund, surged last week to $9.10, the most since July 2009, after reporting preliminary fourth-quarter revenue that beat analyst estimates.

--Editors: Marie-France Han, Tal Barak Harif