Brean Liked NVIDIA's Q4, But Remains On Sidelines

• NVIDIA Corporation NVDA shares have climbed 18 percent since August 18.
• Brean Capital’s Mike Burton maintained a Hold rating for the company.
• Despite a challenging environment, the company reported a beat and raised its guidance, Burton stated.

NVIDIA reported robust results for the January 2016 quarter, with revenue and GAAP EPS of $1.4B and $0.35, respectively, coming in ahead of the Street expectation of $1.31B and $0.32. The company generated 7 percent sequential revenue growth, beating the guidance for flattish growth.

NVIDIA paid $62 million in cash dividends and repurchased 4.3 million shares during the quarter. For the fiscal year, the company returned $800 million in quarterly cash dividends and share repurchases to shareholders. NVIDIA plans to return an additional $1 billion in the form of cash dividends and share buybacks in FY17.

The company’s guidance also came in ahead of expectations, with FQ1 revenue and GAAP EPS projected at $1.26B and $0.31, versus the Street estimates of $1.23B and $0.26, respectively. Although revenue is projected to decline 10 percent sequentially, this is “better than seasonal pattern,” analyst Mike Burton noted.

He added, “We believe that the better-than-seasonal guide from NVDA is coming from strength in Data Center and Automotive.”

“The Company continues to execute well and has growth drivers / levers in Tegra (Automotive) and GPUs (Data Center), despite what appears to be a peaking in Y/Y revenue growth trends in its GPU gaming business which has been a big revenue driver over the last couple quarters,” Burton commented.

The analyst estimated the fair value for NVIDIA in the $29-$33 range. The mid-point suggests a premium to the Semi group. He added, however, that at the current levels, the company’s shares are trading near their peak earnings multiple from the last 2 years.