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Why Ceragon Stock Sank 9% Today

By Rich Smith - May 7, 2019 at 6:08PM

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Investors fail to see much light in Ceragon's Q1 earnings.

What happened

Some investors are hoping that Ceragon Networks (CRNT 6.51%) stock could be a great way to profit off of the coming 5G internet revolution. Other investors may look at the results Ceragon posted on Monday and think: Could the revolution get here a bit sooner?

On Tuesday, Wall Street got its first chance to react to Ceragon's Monday first-quarter 2019 earnings miss -- $0.03 in pro forma profits reported, where Wall Street had expected $0.04. Investors' reaction was to sell off Ceragon stock by 9.3%.

Fiber optic cables

Image source: Getty Images.

So what

Was this the right reaction? Well, let's see here. Sales for the quarter -- $69.2 million -- fell 17% in comparison to last year's Q1, missing Wall Street's target of $77 million. Gross margins rose 250 basis points to 35.6%, yet Ceragon's operating profits still declined. And when calculated according to GAAP accounting standards, Ceragon ended up earning only $0.01 per share on the bottom line (not the $0.03 calculated pro forma) -- just one third of last year's Q1 profits.

Now what

CEO Ira Palti blamed "the timing of large orders from India, in addition to typical seasonal factors," and insisted Ceragon is still seeing "a high level of customer activity around the world resulting from the ongoing expansion of 4G and the beginning of the transition to 5G."

Guidance-wise, therefore, Ceragon stuck with its prediction that "overall revenue for 2019" will be "similar to that of 2018," so about $344 million. Wall Street, for its part, is only looking for about $343 million this year, so there's still a chance Ceragon will satisfy investors by the time the year is done -- assuming, that is, the 5G revolution arrives on schedule.

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