Canaccord On Cavium: Sees 'Impressive Additions To Long-Term Roadmap'

In a recent report, Cannacord analysts Matthew D. Ramsay and Logan Bender reiterated a Buy rating on shares of Cavium Inc CAVM, citing “impressive additions to the long-term roadmap,” while warning that choppiness could persist over the near-term as the company’s base MIPS business transitions.

Why Buy?

Although the analysts at Cannacord acknowledged that the current wireless macro backdrop is quite challenging, and that key customers like Amazon.com, Inc. AMZN and Samsung face some headwinds, they pointed out that “Cavium continues to invest and introduce impressive new products including ThunderX2.”

After meeting with the company’s management team in Taipei last week, and receiving demonstrations of several ThunderX OEM/ODM products and of the new CloudScale Rack, Ramsay and Bender left feeling very confident in the long-term adoption of the products.

On the other hand, the experts believe near-to-medium term revenue growth visibility is still challenging, especially taking into account the customer-concentrated nature of the company, and that the “transition from a MIPS-centric to ARM-based portfolio will likely have further bumps.”

Having said this, and pointing out the “impressive progress on all five new product introductions for the year, there is much to be optimistic about long term given differentiated products, large and growing TAM opportunities, and very attractive margins,” the report read.

While the firm maintains a Buy rating, the analysts decided to trim their estimates on the back of “lingering customer-specific headwinds and transitions expected within the base business over the coming quarters that could mask strong growth from emerging products near term.” Finally, Cannacord cut its 12-month price target from $67 to $61, given that “valuation could compress with estimates near term.”

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