On Oct 17, Zacks Investment Research upgraded Diodes Inc. (DIOD) to a Zacks Rank #1 (Strong Buy). The upgrade came on the back of positive estimate revisions for the third quarter and fiscal 2014.
Over the last 60 days, out of the 4 analysts covering the stock, 1 upward revision was witnessed for both fiscal 2014 and third quarter. Thus, Diodes' Zacks Consensus Estimate for the fiscal 2014 increased from $1.47 per share to $1.48 per share over the same period of time, while third-quarter estimate remained unchanged at 42 cents.
Some of the optimism can also be attributed to the updated third-quarter fiscal 2014 guidance provided by Diodes. The company expects third-quarter revenues to range within $230 to $238 million as against $228 to $238 million announced during the second-quarter conference call. The Zacks Consensus Estimate is pegged at $234 million.
The updated revenue guidance reflects a 3% to 6.6% sequential increase. In the second quarter of fiscal 2014, Diodes reported revenues of $223.2 million, up 4.1% year over year due to better-than-expected growth in industrial end markets, aided by favorable product mix in North America and Europe.
Moreover, Diodes increased the gross margin guidance to approximately 32% (-/+1%) from the previous guidance of 31.8% (-/+2%).
The upward revision in guidance is primarily driven by the positive impact from the BCD Semiconductor acquisition coupled with favorable product mix and better capacity utilization.
The BCD Semiconductor acquisition is benefiting Diodes to expand its footprint in the broader analog market and extending the product offerings. We believe that the company's product launches and product refreshes will boost revenues, going forward.
However, competition from the likes of Fairchild Semiconductor International Inc. (FCS) and ON Semiconductor Corp. (ONNN) remains a concern.
Investors may also consider another stock, Rambus (RMBS) with the same Zacks Rank as Diodes.
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