Cypress Semiconductor: A Nice Run, But It's All Out Of Catalysts Now

Barclays said in a Tuesday note Cypress Semiconductor Corporation CY shares have had a nice run, but most catalysts have already played out.

The firm downgraded Cypress Semiconductor's rating from Overweight to Equal Weight and lowered its price target from $18 to $17.

At the time of writing, shares of Cypress Semiconductor were down 2.21 percent at $15.95.

Analyst Blayne Curtis noted that Cypress Semiconductor stock has been one of the top performers in the semiconductor sector, having gained 18 percent since the start of the second-half compared to a 3.7 percent gain by his SMID coverage.

Additionally, the analyst said additional margin leverage would get tougher and moderating industrial environment would pose a risk next year. However, Barclays sees better areas for outperformance from here. The firm said IoT has outperformed its initial expectations and would continue to drive growth, despite the growth moderating.

The firm said the Street has backed in the Apple Inc. AAPL impact to numbers but it believes USB-C is a standards-based space and will become more competitive over time. With the exit of players such as Marvell Technology Group Ltd. MRVL from the low end, the firm expects IoT to continue to be a positive.

On margins, Barclays said, though leverage from fab utilization has largely played out, it still believes there is some additional upside to margins in the near term, with memory pricing, cost downs and mix to IoT likely to be sources of upside.

The firm said it is below the company's gross margin estimate of 47.9 percent, exiting the year. Therefore, the firm sees a potential estimate reset next year. The firm also expressed frustration over the company's inability to push margins of NOR higher, apparently due to the management taking a longer-term view of pricing.

Concluding, the firm said, "Net net, while we think that management has a done an impressive job implementing the CY 3.0 strategy and CY still has interesting opportunities in IoT and USB-C, we don't like the risk/reward vs. other names."