Goldman: Xilinx Has 19% Upside

• Xilinx, Inc. XLNX shares are down 10 percent since June 15, after crossing the $48 mark on June 1.
• Goldman Sachs’ James Covello upgraded the company from Neutral to Buy, while raising the price target from $40 to $50.
• A recovery in the communications infrastructure revenue and increased LTE deployment are expected to benefit Xilinx, Covello said.

Analyst James Covello believes that Xilinx’s communications infrastructure revenue is all set to recover from a low base into 2016. While there is limited visibility into the “timing and magnitude” of a recovery, semi shipments into the communications market are “undershipping normalized demand” by 25-30 percent, Covello said.

Goldman Sachs noted, “When undershipment of 10% or more has occurred in the past, comms revenue has recovered by an average of over 30% in the following year.”

Apart from the early signs of improvement in communication infrastructure, the beginning of LTE deployments in India is also expected to act as a catalyst. Covello added, “Importantly, we believe that Street estimates for Xilinx are achievable (in contrast to our concern with the rest of the group), as the Street has 3% yoy EPS growth modeled for Xilinx vs. the group at up 16% and Xilinx’s 3-year CAGR of 4%.”

Covello expects Xilinx’s aerospace and defense revenue, currently constituting 10-15 percent of the company’s total sales, to transition from a headwind this year to a tailwind in 2016 based on the timing of government programs.