Bernstein Upgrades ARM Holdings To Market Perform But Warns 'Not Ripe For A Buy'

• Shares of ARM Holdings plc (ADR) ARMH have declined about 25 percent in the past six months, since the peak seen in March.
• Bernstein’s Pierre Ferragu has upgraded the rating on ARM Holdings from Underperform to Market Perform, with a price target of GBp 800.00.
• Ferragu believes that there is limited downside risk to the stock but recommends that investors wait for more attractive valuation or an end to the negative newsflow before owning the stock.

ARM Holdings’ share price has declined 25 percent following the disappointing 2Q results and intensifying negative newsflow related to the handset market. Near term expectations for the company have also declined, making the risk/reward less attractive at present.

However, Ferragu believes that the smartphone market is unlikely to deteriorate further in 2016. On the other hand, the company’s royalty numbers are likely to fall short of the consensus forecast in the coming quarter, although not too significantly.

Seasonality analysis suggests that the Bernstein and Street forecasts could decline for the second half of 2015.

“[O]ur joint work with Bernstein's Semis and Hardware analysts suggests the smartphone correction will continue to be strong in the second half but things should normalise in 2016,” Ferragu added.