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A Preview Of Mentor Graphics' Q2 Results From D.A. Davidson

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A Preview Of Mentor Graphics' Q2 Results From D.A. Davidson

Mentor Graphics Corp (NASDAQ: MENT) is set to report its second-quarter results on August 18, after the market close, and D.A. Davidson projects an in-line result from the supplier of electronic design automation tools.

The brokerage expects the company to post revenue of $245 million and pro-forma EPS $0.10, in line with the Street's mean. The company's guidance calls for revenue of $245 million and EPS of $0.09 was well below the year-ago quarter ($281 million and $0.36, respectively).

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"We believe some strength in the quarter came from the auto segment and the company should benefit from a continued focus on cutting costs; however, an expected recovery in the emulation business that drove much of MENT's growth over the past few years has yet to materialize," analyst Thomas Diffely wrote in a note.

Diffely, who rates Mentor Graphics shares at Buy with a $24 price target, said the company's third-quarter outlook could fall below the Street's view.

Analyst Expectations

The analyst sees the company posting revenue of $300 million and pro-forma EPS at $0.34, ahead of the year-ago quarter but below the Street mean of $310 million and $0.41.

"Not only do we believe that current business trends are not strong enough to enable the company to guide to a record FQ3, but management has had a fairly strong record over the past few years of providing very conservative out quarter guidance," Diffely highlighted.

Further, Diffely said the company is unlikely to change its 2016 guidance, which calls for low-single-digit revenue growth.

"Based on a combination of modest expectations for FY 2017, a relatively stable core EDA market, an active share repurchasing program and a stock currently trading at a significant discount to its peers, we believe there is limited downside risk to the shares," Diffely noted.

Meanwhile, the analyst pointed to continued automotive growth and a recovery in the emulation market as upside drivers. In addition, the analyst added that the ongoing cost control should enable solid cash generation of $150 million–$200 million this year.

At time of writing, shares of Mentor Graphics were flat on the day, 3 cents off Wednesday's open of $21.70.

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Latest Ratings for MENT

DateFirmActionFromTo
Nov 2016Credit SuisseDowngradesOutperformNeutral
Nov 2016DA DavidsonDowngradesBuyNeutral
Oct 2016Credit SuisseInitiates Coverage OnOutperform

View More Analyst Ratings for MENT
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