Semiconductor Shareholders Beware: Goldman Sachs Is Bearish

Although the analog semiconductor business model is stable, a guarded approach is recommended in view of “the muted top-line outlook, elevated margins and stretched multiples,” Goldman Sachs’ Toshiya Hari said in a report. The analyst initiated coverage of 4 Semiconductor stocks.

Analog Devices

Analyst Toshiya Hari initiated coverage of Analog Devices, Inc. ADI with a Sell rating and a price target of $50, which implies 15 percent potential downside. He said there was limited upside to the company’s long-term margin targets.

Although Analog Devices is well positioned in data converters and has a high margin/return profile, the stock performance is likely to be impacted by the company’s high exposure to one socket at Apple Inc. AAPL, which constituted about 10 percent of total revenues, as well as the stretched multiples and downside to the CY17 Street estimates.

Maxim Integrated Products

Hari initiated coverage of Maxim Integrated Products Inc. MXIM with a Neutral rating and a price target of $35, which implies 8.5 percent potential downside.

Maxim is among the few companies in the analog space with room for margin expansion through self-help measures, and its margins could improve over the coming years. The analyst said, however, that there were risks associated with the company’s outsized exposure to Samsung as well as its elevated valuation levels.

Linear Technology

Hari initiated coverage of Linear Technology Corporation LLTC with a Neutral rating and a price target of $46, which implies 3.5 percent potential downside.

“While we are positive on LLTC’s favorable end market exposure and track record executing at coverage-best margin levels, the company’s current valuation premium fairly captures these positive aspects, in our view,” the Goldman Sachs report noted.

Texas Instruments

The analyst initiated coverage of Texas Instruments Incorporated TXN with a Sell rating and a price target of $51, which implies 16.5 percent potential downside. He commented that although the company had executed well in recent quarters, its multiples were elevated and there was “limited headroom for additional margin optimization.”