Ikanos Communications (NASDAQ:IKAN) will probably struggle in the near term as they absorb their recent equity offering, which over the long haul should allow them to develop higher-margin products.
Needham, which maintains a "Buy" rating on them, said this, "We believe the recent offering strengthens the company’s balance sheet and provides additional flexibility for the new management team to effect the transition to a company focused on proprietary, higher margin products. We expect the ramp of new proprietary products, including the company’s NodeScale Vectoring solutions for the CO and new communication processors for CPE equipment, to drive renewed top-line growth and strong operating leverage beginning in 2012. Based on an earnings sensitivity analysis, we believe 2012 non-GAAP EPS could easily be in the $0.10 to $0.20 range. Though we expect investors will have to be patient through 2011 as the company brings new products to market, we ultimately believe IKAN investors will be rewarded."
Ikanos closed Tuesday at $1.05, gaining $0.03, or 2.94 percent. Needham has a price target of $1.50 on them, lowering it from the previous $1.70.
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