Activist Investor Prompts Barclays To Upgrade Mellanox Technologies

Mellanox Technologies, Ltd. (NASDAQ: MLNX) traded sharply higher on the news that activist hedge fund Starboard Value LP bought a 10.7-percent stake in the company.

The Analyst

Barclays' Joseph Wolf upgraded Mellanox Technologies from Underweight to Equal Weight and increased the price target for the stock from $47 to $55.>

The Thesis

Starboard Value's stake adds a positive technical element to near-term stock performance, Wolf said. (See Wolf's track record here.) The market expects Starboard to make changes that could bring potentially better performance, the analyst said.

Barclays' $55 price target is based on 16 times the 2019E EPS of $3.46.

The long-term performance of Mellanox will depend on the way the company responds to the advice or involvement of its new largest shareholder, and the most obvious area for Starboard to focus is R&D and SG&A, Wolf said.

Mellanox Technologies has been successful so far because of its fast reaction to emerging opportunities, so the extent to which cutting opex will impact that strategy remains to be seen, the analyst said. 

The Price Action

The stock is trading around 3 percent higher and has gained more than 40 percent year-to-date.

Related Links:

Benzinga's Top Upgrades, Downgrades For November 28, 2017

Mellanox Technologies Clocked After Q4 Miss, Lower Guidance

Photo courtesy of Mellanox Technologies.