Mellanox Technologies (MLNX) Dives on Downgrade

NEW YORK (TheStreet) -- Ahead of its fourth-quarter and full-year earnings report on Wednesday, Barclays has issued a downgrade on Mellanox Technologies (MLNX) to "underweight".

The Israel-based chipmaker is expected to record fourth-quarter net income of 20 cents a share on $107.87 million in revenue, according to analysts surveyed by Thomson Reuters. For the full year ended December, net income of 90 cents a share on $393.18 million is anticipated. 

TheStreet Ratings team rates MELLANOX TECHNOLOGIES LTD as a Hold with a ratings score of C. The team has this to say about their recommendation:

"We rate MELLANOX TECHNOLOGIES LTD (MLNX) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including a generally disappointing performance in the stock itself, deteriorating net income and disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • MLNX's debt-to-equity ratio is very low at 0.00 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 4.50, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for MELLANOX TECHNOLOGIES LTD is currently very high, coming in at 74.27%. It has increased from the same quarter the previous year. Regardless of the strong results of the gross profit margin, the net profit margin of -5.20% is in-line with the industry average.
  • The revenue fell significantly faster than the industry average of 0.4%. Since the same quarter one year prior, revenues fell by 33.5%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
  • Net operating cash flow has significantly decreased to $16.42 million or 77.91% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
  • Return on equity has greatly decreased when compared to its ROE from the same quarter one year prior. This is a signal of major weakness within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, MELLANOX TECHNOLOGIES LTD's return on equity significantly trails that of both the industry average and the S&P 500.

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