Wall Street Weighs In On Pricy NVIDIA After Stellar Earnings

• NVIDIA Corporation NVDA reported its third quarter financial results after the market closed on Thursday.
• Earnings of $0.46 per share and revenue of $1.305 billion came in well ahead of the Street’s consensus estimate of $0.25 per share and $1.183 billion.
• Several Wall Street research firms have already weighed in on the results. Below are some takeaways from sell-side impressions.

Shares of NVIDIA were trading more than 14 percent higher on Friday morning, following a huge earnings beat on Thursday evening. This is what the Street said following the call:

MKM Partners

After the earnings call, Ian Ing, Executive Director at MKM upgraded the stock from Neutral to Buy, establishing a $36 price target. According to the report, the firm sees a “sustainable growth trajectory,” given the company’s “positioning to lead in significant paradigm changes favoring more valuable semiconductor solutions: automotive evolving from driver assist to autonomous driving, gaming transitioning to virtual reality and professional or social E-sports, and cloud computing increasingly using GPU accelerators for machine learning.”

So, while the experts recognize the stock commands one of the highest earnings multiples in the semiconductors industry, they believe “this multiple is reasonable in the context of NVDA seeing ‘very large markets’ and its TAM opportunity having ‘never been greater.’”

Morgan Stanley

Analysts at Morgan Stanley reiterated the Equal-Weight rating it had issued for the stock last week, maintaining their $30 price target. They noted that the quarter was even better than the firm’s above-consensus estimates, “as the Maxwell product cycle remains strong.” In addition, they pointed out, the company raised its dividend and 2016 buyback plan.

However, they maintain an Equal-Weight rating based mostly on the stock’s elevated price. “We expect investor enthusiasm for this expensive stock to persist through the January Consumer Electronics Show,” the report concluded.

Brean Capital

Brean Capital’s Mike Burton also reiterated a Hold rating on the stock after the “solid October quarter results and January guidance.”

The expert noted that, “the Company is well-positioned on a massive gaming cycle with strong AAA titles this holiday season, eSports, and VR,” which he believes will reach a peak around NVIDIA’s presentation at the January Consumer Electronics Show.

The stock’s performance “has been stellar,” he added. “As it continues to take more share from its competitor AMD in the fast growing gaming vertical, we remain on the sidelines at current levels as NVDA is trading near its peak earnings multiple from the last 2 years.” However, the firm did adjust its fair value estimate to $28.

Roth Capital Partners

Finally, Brian Alger at Roth Capital reiterated a Neutral rating, while raising his price target from $26 to $30 on the “stellar results.”

“As we look at NVIDIA's business, we continue to see its three core growth drivers (Gaming, Datacenter, and Automotive) pushing profits higher. Over the past several years, cash management and a return of capital to shareholders has been steadily improving,” the report explained.

The analyst also noted that the company raised its quarterly cash dividend from 9.75 cents to 11.5 cents and has plans to return $1 billion to shareholders via dividends and a buyback plan in 2016. “The combination of a focus on its core competencies and cost controls has lifted NVDA profits and its shares above many of its peers,” he concluded.

Disclosure: Javier Hasse holds no positions in any of the securities mentioned above.