D.A. Davidson Downgrades Mentor Graphics Following Q2 Results, Guidance

Mentor Graphics Corp MENT reported robust FQ2 results, with the revenue and EPS ahead of expectations.

However, D.A. Davidson’s Thomas Diffely downgraded the rating on the company from Buy to Neutral, with a price target of $24.

FQ2 Beat

Mentor Graphics reported FQ2 revenue of $254 million and pro forma EPS of $0.15, ahead of the consensus and the estimates.

“Strength in the quarter (versus initial guidance) came from a recovery in the Emulation business that had been bouncing along at trough levels since late 2015,” Diffely mentioned.

Related Link: Mentor Graphics Beats Estimates, Mixed Guidance

Record Guidance

The company issued record FQ3 guidance, in line with the consensus forecasts, with revenue of $310 million and pro forma EPS of $0.42.

“A combination of a continued Emulation recovery and a strong order book from the system houses should drive a record third quarter and, in turn, reduce the risk of a required fourth quarter ramp to meet full year guidance,” the analyst explained.

Full-Year Guidance

Despite the beat FQ2 results and its record FQ3 guidance, Mentor Graphics left its full-year guidance unchanged, expecting modest revenue growth of 3 percent and earnings growth of 8 percent.

“At this point it is apparently too difficult to ascertain if the upside in the quarter was simply a pull-in from business projected to hit later in the year or a true upside to expectations that would not be offset by other segments,” Diffely noted.

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