RBC's Semiconductor Team Just Picked This Mid-Cap As Its Top Pick

RBC Capital Markets’ Mitch Steves upgraded the rating for Microsemi Corporation MSCC from Outperform to Top Pick, while raising the price target from $45 to $46.

Microsemi is among the few semiconductors companies having a valuation that is close to its 2008-2009 trough level, while maintaining a robust EPS growth level. The company operates in five distinct segments and, thus, has a diversified revenue base.

Analyst Mitch Steves believes that despite the challenging dynamics facing the semiconductor industry, Microsemi’s EPS is likely to grow at a notable pace in FY17 and beyond, driven by the success of the company’s cost cutting efforts.

The analyst believes that Microsemi’s shares would gain nearly 40 percent as it successfully integrates PMC-Sierra Inc PMCS, pays down debt and executes on its FCF generation plans.

“Microsemi is currently trading at ~10x FTM P/E and we note this is 20%+ below its 10-year average of 12.8x,” the RBC Capital Markets report noted. The EPS estimate for the June quarter has been reduced from $0.82 to $0.78, while the EPS estimate for September quarter has been raised from $0.91 to $0.95.