OIIM Trading At a "Significant Discount," Sterne Agee Reports

Sterne Agee said that it continues to believe that O2Micro International Ltd.'s

shares are trading at a significant discount relative to its peers and that as operating margins begin to improve in the back half of 2011, the multiple discount will erode. “Excluding $3.30 per share in cash, the stock is trading at 8X our 2011 EPS estimate of $0.54 and 7X 2012 our 2012 EPS estimate of $0.68,” Sterne Agee writes. “Our price target is $12 (13X 2012 EPS of $0.68, plus $3.50/share in cash) and downside to $5 (tangible book of $5.17). “We believe multiple expansion will be driven by 1) sequential EPS growth beginning in the Jun-11 quarter; 2) Y/Y revenue and EPS growth going from negative to positive beginning the Sep-11 quarter; and 3) increasing awareness that the stock will no longer be hindered by litigation expense or the ‘non-strategic' network security business, both of which had been a significant drag on earnings.” O2Micro International closed Monday at $7.78.