Aaron Katsman
IsraelNewsletter.com

BluePhoenix Solutions (Nasdaq: BPHX) a leading provider of value-driven legacy modernization solutions was absolutely pounded yesterday on the heels of a couple of analyst EPS downward revisions. The Israeli company saw its stock fall more than 30% as analysts viewed the strong Israeli shekel as impacting earnings.

As reported in the Tech Trader Daily: “Roth Capital’s Nathan Schneiderman notes that Blue Phoenix has nearly 30% of its headcount in Israel, vs. less than 10% of its revenue. He notes that the shekel has appreciated 5% against the dollar since the company provided guidance on May 1.”

“Craig-Hallum’s Jeff Van Rhee made a similar call this morning, lowering EPS estimates “to reflect currency and increasing macro challenges internationally.”

Both analysts lowered future earnings estimates. Schneiderman cut his estimates by about 7-8%. So why should the stock have gotten crushed by 30%? It’s not exactly like BluePhoenix has been soaring and investors are being brought down to earth. It’s not exactly a secret that the Shekel has been strong. I find it hard to believe that investors were “shocked” to see that currency issues would impact earnings. At IOI we have been speaking about this issue for months. In fact both analysts have new $15 price targets. Even pre-rout that was a 50% premium to where it was trading, now at under $7/share we have a target more than 100% above the current stock price.

I am certainly not saying to run out and buy the stock. I am saying something strange is at play here. They are basing their call for ‘09 on continued shekel strength and too much exposure to the financial sector. Have these analysts turned in forex traders? Are they predicting that the Shekel will rise for another full year? Neither one of these issues is new, so why are they only waking up now and dropping numbers? After all the Shekel has been surging higher for more than a year, and we all know that banks will probably chop some IT spending in order to cut costs.

Is this another case of analysts making a call after the fact? If so keep an eye on BluePhoenix, as it may potentially turn into a juicy contrarian play.

Disclosure: Author’s fund has a position in BPHX as of 6/20/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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Aaron Katsman
www.IsraelNewsletter.com

Elbit Systems (ESLT), one of our favorite Israeli stocks that trades in the U.S., blew past earnings estimates and produced another record quarter. The Israeli defense company, posted revenues of $616.1 million, up from $403.6 million in the first quarter of 2007.

Gross profit for Q1 ‘08 increased by 62.6% to $168.4 million (27.3% of revenues), as compared with gross profit of $103.5 million (25.7% of revenues) in Q1 ’07. Margins continued to be strong and the company now can boast that more than 80% of revenues come from outside of Israel, meaning that they have done a bang up job in diversifying their revenue stream.

What really makes the report interesting is the backlog of orders in the pipeline. Elbit reports $4.9 billion in backlog, with about 69% of the Company’s backlog as of March 31, 2008,  scheduled to be performed during the upcoming three quarters of 2008 and during 2009. Giddy up! Obviously this bodes very well for the upcoming year, and has the potential to help fuel the stock higher.

Commenting on the earnings, CEO Joseph Ackerman said, “I am pleased to report another quarter of strong growth with record financial results. We also had a record quarter of over $914 million in bookings, enabling our backlog to reach just shy of the $5 billion milestone. (Continue »)

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Aaron Katsman
www.IsraelNewsletter.com  

I would like to start by taking this opportunity to wish my wife, Yael “Nefesh B’Nefesh” Katsman, a belated happy anniversary. Our anniversary was actually yesterday, and NO I didn’t forget, we had a tasty dinner, I just didn’t mention it in the blog. Give me a little credit.

The big news of the last 24 hours is the intervention in the currency market by the Bank of Israel (BOI). Yesterday afternoon in after-market trading the Shekel/USD rate fell to approximately 3.34. Then came the news that the BOI was intervening for the first time in more than a decade, and that send the greenback back up more than 1.5%. Today, the BOI announced more intervention, and that is helping the dollar even more. Local media reports have said that the BOI wants to get the exchange rate back to at least 3.60, which is about 4% high than today.

Why the sudden move by the BOI? The shekel has been the second strongest currency in the world YTD, and the impact on exporters has been huge. Losses continue to mount for them, and the BOI needed to do something.

This move could have profound impact on some Israeli stocks that trade in the US. Companies like Alvarion (ALVR), Nice Systems(NICE), Amdocs(DOX), all do R&D in Israel and their expense lines have increased due to the strength of the shekel. The recent BOI intervention could potentially have positive ramifications on earnings for these companies.

Disclosure: Author’s fund holds a position in ALVR, NICE and DOX. He has no position in any other stock mentioned as of 3/14/08.

Please see our Disclaimer HERE.

NEW! Introducing Israel Opportunity Investor, our monthly subscription-only newsletter. Stay ahead of the game and make smart decisions in Israel stocks. Go here to learn more.

Aaron Katsman is Managing Editor of the Israel Opportunity Investor newsletter. He is lead portfolio manager for the Israel Growth Portfolio and Managing Director of America Israel Investment Associates, LLC. For more information, go to www.israelnewsletter.com or call 1-888-327-6179, or email aaron@profile-financial.com.

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