Orckit Communications (Nasdaq: ORCT; TASE: ORCT) crossed the $31 mark at the end of January and by the end of last week had slumped 35%. Such a case of anticipation and subsequent decline is difficult to explain, but it appears to be commonplace among tech stocks. From what I have seen in recent months, it is clear that it has nothing to do with Main Street and is entirely the work of Wall Street. In the case of Orckit, nothing new happened that would explain the fall, certainly nothing bad and the company has in fact been producing nothing but good news of late. So why did the stock fall as it did? There are those who put it down to the disappointment with the financial reports while others claim that what harmed the share was the organized share sale by two managers Orckit chairman and CEO Eric Paneth and Tikcro chairman and CEO Izhak Tamir, through Credit Suisse.
Such a move flies in the face of all reason. Two senior shareholders come along and secure their future right up to 2012. But why not? After all, these two have been through a lot and held on to their shares (in contrast to a few managers in other companies), even when the company stock represented a value of more than $1 billion, and after succeeding in pulling the company out of the crisis it was in. So don’t they deserve to earn something for all their troubles? The market never punishes a stock for sales of this kind. There are those who still accuse Orckit of being a one client company. But although this is no longer the case, as there are new customers (and we believe that if the platform is as good as users say it is, the number of clients will only increase), the stock still fell 35%.
So what was it that made things change this week? Positive ratings from RBC Capital Markets analyst Daniel Meron, and Oscar Gruss analyst Roni Biron. Both analysts gave the company high scores, with Meron setting a target price of $32 and Biron setting a target price of $32. This, I feel, is what made the trend change at the end of the week.
I wholeheartedly agree with the two analysts regarding their “Buy" ratings Orckit, principally because of the company’s technology and management. The "single customer" issue will eventually fade and there is another interesting factor which Meron feels is currently influencing the stock and this is the attempted takeover of Vodafone Japan’s cellular division by Japanese bank Softbank for $15 billion. At the time of writing this article, it looked as though the deal was nearing closure. But since then, several private US giants such Cerebus Capital Management LP have also stepped in and are also battling for the acquisition of the Vodafone division.
Of course, the US groups can go head to head with Softbank and the process could therefore take some time to reach a conclusion. It could harm Orckit’s future contract schedule and as long as this state of affairs persists, more speculators and dealers will join the fray, each with his own idea of the stock should be moved. A price of $20-22 or even more is certainly economic as long as this state of affairs persists.
Published by Globes [online], Israel business news - www.globes.co.il - on March 21, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006