4 Semiconductor Stocks Susquehanna Loves

Susquehanna Financial Group commented on semiconductor stocks following earnings season.

Analyst Chris Caso thought “this earnings season demonstrated a continuation of the Goldilocks semiconductor recovery, with slow growth, accentuated with pockets of secular weakness.”

Caso reiterated the position that slow growth did not indicate a cyclical downturn and the firm listed its “favorite ideas” for companies that can grow EPS in the currently sluggish environment.

Below are Caso’s four picks for companies “whose management teams have best adapted to the current slow-growth environment.”



Broadcom Corporation BRCM

The Q1 earnings report “demonstrated both the stability in their business as well as the benefits to shareholders from that revised model,” and Caso believed “the stock's discounted multiple is unsustainable and that continued quarterly execution puts the company closer to achieving a peer multiple,” with anticipated “$3.50 in earnings power and a mid-teens multiple” Caso saw “upside into the mid-50s.”

Marvell Technology Group Ltd. MRVL

Caso thought “a spinout would remove the justification for assigning MRVL a discounted multiple relative to peers. Going forward, since we got a reset on the core business (and the stock barely reacted), and with the potential for a strategic alternative for the handset business, we think the stock's risk/reward is quite attractive.”

NXP Semiconductors NV NXPI

“By the time 4Q comes around and the FSL deal has closed, we think all eyes will be focused on the earnings power of the combined company. Based on even a mid-teens multiple (which would be a discount to the group) and $8.50 in earnings power, this would yield a stock price in the $125-130 range,” according to Caso.

Microchip Technology Inc. MCHP

Caso estimated the Micrel, Incorporated MCRL deal could “generate between $0.15 and $0.38 of EPS through cost synergies alone,” and assuming “a nominal $3.25 in earnings power for MCHP” with a peer average high-teens multiple could result in “a mid-to-high-$50s price for the stock.”