Ceragon Networks (CRNT): Analysts generally like the wireless backhaul play

Investment banks kicked off coverage today of a small Israeli wireless backhaul firm, Ceragon Networks (NASDAQ: CRNT). The banks generally seem to like it. I see Jeffries, Bank of America and Lehman all with buys on the small firm.

As I see it, there are a couple of issues with the current wireless infrastructure:

• Current backhaul infrastructure in emerging markets cannot handle huge traffic growth
• Because the market is quite consolidated, it's hard for new entrants to penetrate into the industry
• Carriers are looking to deploy fully-IP networks

These dynamics bode well for Ceragon, which commands about a 10% market share in its niche. Ceragon is a pure-play in the wireless backhaul and stands to benefit from robust growth driven by expansion into new markets and increasing use of data applications. The company also white-labels its products to sell through Nokia (NYSE: NOK). This dependence, while a boon for the company and helps to contribute to 35% yearly growth estimates, also entails risk as the global wireless powerhouse has been a 10% customer for the past few quarters.

"We believe that the proper comparables for Ceragon [are] those vendors directly competing in the wireless backhaul space, along with the broader communications equipment universe that service the carrier channel," the Lehman Brothers initiation report on the company said. "Given the company's revenue growth dynamics and exposure to wireless data growth, we believe that Ceragon should trade at a premium to wireless backhaul providers and legacy, lower growth vendors in the carrier channel." Lehman put a $16 price target on the firm.

Zack Miller is the managing editor of IsraelNewsletter.com and a former equity analyst for a leading multinational hedge fund. Author holds no positions in the stocks mentioned above.