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Crime Pays for Radware as Cyber-Attacks Increase: Israel Markets


November 3, 2014 02:00 PM

The spate of cyber-attacks that rocked U.S. companies in 2014 came at just the right time for Tel Aviv-based Radware Ltd. (RDWR), which spent the last three years doubling its U.S. sales force.

Radware, whose technology distributes workloads across networks and helps fend off threats, reported third-quarter earnings-per-share on Oct. 28 that beat the average analyst estimate by 24 percent, triggering the biggest rally in the stock since 2010. The shares gained 12 percent last week to $18.99, the best performance on the Bloomberg Israel-US Equity index.

Radware’s technology, used by customers such as Verizon Communications Inc. and Hewlett-Packard Co., acts like a traffic cop in computer networks, routing tasks to make sure applications run smoothly and quickly. The company has adapted its products to cloud-based software, which lets information be stored online instead of on a local computer, and incorporated cybersecurity features to defend against attacks like ones perpetrated against Sony Corp. and Bank of America Corp.

“Their security product, combined with their application delivery product to support attack mitigation, has really been what investors have been looking for,” Catharine Trebnick, an analyst with Dougherty & Co. who recommends buying the shares, said by phone from Minneapolis. “They’ve been investing in their partnerships and it finally paid off.”

‘More Investment’

Radware reported third-quarter profit of 24 cents per share, compared with an average analyst estimate of 19 cents. Revenue rose to $56.8 million, up 18 percent from a year ago.

Chief Executive Officer Roy Zisapel forecast sales of as much as $61 million in the fourth quarter, above the average analyst estimate, citing demand for both cybersecurity and faster access to Web applications.

Radware has a 30-person sales force in the U.S., up from 15 people three years ago, according to Chief Financial Officer Meir Moshe. U.S. sales represented 45 percent of revenue in the third quarter, up from 41 percent 12 months earlier, Moshe said in a phone interview from Tel Aviv on Oct. 31. It’s also taking less time to close on new business, he said.

“Cloud and cybersecurity are leading the growth, because we see more investment,” Moshe said. “Everybody is building his own cloud, or participating in public cloud infrastructure. If somebody understands that he needs a solution for security or cloud, he doesn’t play games waiting for another quarter. They fund the budget.”

Denial-of-Service

Since Radware’s technology manages network traffic, it’s well-suited to provide security for so-called denial-of-service attacks, which try to overwhelm a network with external communications requests while simultaneously stealing data through targeted attacks, said Alex Henderson, an analyst at Needham & Co. in New York who recommends investors buy shares of Radware.

“Denial-of-service attacks are rampant, and this is one of the best technologies available to address them,” Henderson said by phone Oct. 30. “The first thing you want to do to stop the target attacks is be able to see them, and one of the ways you do that is take the fog of war away by removing the DoS attack.”

Sixty percent of analysts covering Radware recommend buying the stock, up from 50 percent a year ago. The shares will gain 16 percent in the next 12 months, according to the average of seven estimates compiled by Bloomberg. Israel’s TA-25 benchmark stock index added 0.2 percent to 1,439.91 today at 2:06 p.m. in Tel Aviv.

F5 Networks

Competition, high costs, and the risk that customers like AT&T Inc. may rein in spending could hurt results next quarter, Ittai Kidron, an analyst at Oppenheimer & Co., wrote in an Oct. 28 report. Kidron has a neutral rating on Radware.

“The competitive environment remains tough,” Kidron wrote. “We believe expenses could remain on the higher side of guidance.”

F5 Networks Inc., a Seattle-based company that sells traffic management solutions, also saw revenue jump 18 percent in the fourth quarter to $465 million, the company said Oct. 29.

Radware’s stock rose 7.5 percent in October, the biggest rally in 11 months. The company has gained 5.6 percent this year. Investments in sales and marketing will be key to sustaining its third-quarter earnings performance, said Andrew Lerner, an analyst at Gartner Inc. in Clearwater, Florida.

“It hasn’t been the tech that’s held them back traditionally, it’s been other areas,” Lerner said by phone Oct. 30. “If they are committed, there is certainly reason to be bullish, because there are opportunities, and they have the technology.’

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