We maintain our Hold recommendation and the same valuation target for Alvarion Limited (ALVR), a leading provider of wireless access and transport infrastructure, ahead of its first quarter 2008 financial results. Alvarion is a pure play WiMAX equipment manufacturer.
Although deployment of high-speed wireless data networks will likely remain firm, some major carriers in the U.S. and Japan have decided to implement alternative technologies instead of WiMAX. This makes the company's near-term business opportunities challenging.
Furthermore, an overall economic slowdown, a weak U.S. dollar, and low interest rates in the U.S. market, may impede Alvarion's earnings momentum in fiscal 2008. Despite these issues, we believe higher bandwidth requirements to connect cell sites and switching centers with wireless/microwave radios will support the company's continuous growth.
Alvarion has a strong balance sheet with positive cash flow from operations. Alvarion is currently trading at 108.7x our estimated earnings for fiscal year 2008, which represents a significant premium compared to the forward S&P 500 and telecom equipment peer group averages.
On the basis of other selected valuation metrics, the stock is also trading above the peer group. Given the near-term business and economic challenges, we believe, the stock will remain volatile at least in the first half of 2008. We, therefore, reduce our six-month valuation target to $9 based on a forward EV/S ratio of 1.6x our fiscal 2008 sales estimates.
Nalak Das contributed to this report.
Read the full analyst report on ALVR.
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.