An early horse out of the earnings gate, Motley Fool Hidden Gems recommendation and wireless network solutions provider Ceragon Networks (NASDAQ:CRNT) will report its third-quarter earnings this Monday. We're at the paddock to give you an advanced look at this stallion.

What analysts say:

  • Buy, sell, or waffle? Of the 11 analysts giving an opinion on Ceragon, five of them say buy, five give it a hold rating, and one says sell. The company holds a top-notch five-star stock rating, with more than 840 opinions in the Motley Fool CAPS community.
  • Revenue. On average, analysts predict quarterly sales to rise 29% over the same quarter last year, to $39.3 million.
  • Earnings. Profits are expected to more than double to $0.12 per share.

What management says:
Ceragon is in the sweet spot of several major upgrade cycles in various communications networks. Within the cellular market, upgrades to networks to support new broadband services from companies like Verizon Wireless -- a joint venture of Verizon Communications (NYSE:VZ) and Vodafone (NYSE:VOD) -- and AT&T (NYSE:T) in the U.S. has Ceragon's backhaul solutions in high demand.

After a smashing second quarter, management increased its optimism for growth in 2007 by "raising our full-year revenue growth target from 30% to about 40% growth over 2006." This growth is being fueled by the shift to IP-based backhaul solutions, an area that management believes will contribute significantly to growth in the future as well.

What management does:
The margin picture for Ceragon is skewed because of the impact in late 2006 of a $10.4 million cost-of-revenue expense. This charge was related to royalty obligations from previous grants from the Israeli government. With this anomaly removed, gross margins are stable, while operating and net margins show positive upward trends.

Margins %

3/06

6/06

9/06

12/06

3/07

6/07

Gross

37.7%

35.8%

33.8%

25.8%

26.5%

27.6%

Operating

2.2%

0.7%

1.3%

(6.0%)

(3.5%)

(1.3%)

Net

(5.6%)

(5.4%)

(4.0%)

(5.0%)

(2.6%)

(1.1%)

All data courtesy of Capital IQ, a division of Standard & Poor's. Data reflects trailing-12-month performance for the quarters ended in the named months.

One Fool says:
Risks to continued growth at the company are largely in the macro trends -- such as when customers like Nokia (NYSE:NOK) and Siemens (NYSE:SI) grumble about how their infrastructure partnership is performing. Recent profit warnings from Alcatel-Lucent (NYSE:ALU) and Ericsson don't bode well for the sector, either.

But another area where investors should keep their ears open is the purpose behind a recently proposed 6-million-share offering. While significant dilution of the share base is rarely cheered, the important factor is how the proceeds are used. For this, we will stay tuned.

Frequent more Foolish insight here:

Ceragon Networks is off to a fast start on the Motley Fool Hidden Gems scorecard with a 49% gain since its selection only three months ago. To see what other stocks Tom Gardner and Bill Mann think will beat the market, take a free 30-day trial.

Aging Fool contributor Dave Mock ain't what he used to be, but there's still some giddy-up in his saddle. He owns shares of Alcatel-Lucent. Dave is the author of The Qualcomm Equation. Vodafone is an Inside Value recommendation. Fool's disclosure policy stays clear of the long shots and puts food on the table with the exacta box.