A Beat And Raise Quarter From Semtech Earns It An Upgrade From Oppenheimer

Semtech Corporation SMTC touched a new 52-week high of $31.83 following its beat and raise quarter, which also earned the stock an upgrade from Oppenheimer.

Quick Quarter Review

• Q3 EPS $0.37 vs. prior year quarter of $0.19.
• Revenue of $137.18 million vs. estimate of $138.5 million.
• Semtech sees Q4 adjusted EPS of $0.33–$0.37.
• Sales expected to be $134 million–$142 million vs. estimated guide of $134.6 million.

Analyst's Take

Analyst Rick Schafer has upgraded Semtech shares to Outperform, as the strong third-quarter results suggest stabilization of legacy businesses. Camarillo, California-based Semtech is a supplier of analog and mixed-signal semiconductor products.

“Following a couple of transition years, we believe SMTC’s legacy businesses (long-haul, Samsung Smartphone) has stabilized, allowing greenfield optical and LoRa opportunities to drive outsize revenue/earnings growth,” Schafer wrote in a note.

Meanwhile, Semtech’s low leverage of less than 2x paves way for strategic M&A.

A Closer Look At Semtech's Segments, Performances

Further, the analyst said although Samsung's Note 7 cancellation represents a $5 million headwind to its protection segment’s fourth-quarter revenue, China smartphone OEM growth provides an offset. This is likely to keep the segment flat in the fourth quarter.

For wireless/sensing, Schafer said LoRa sales appear on track to hit $20 million–$30 million in 2016 and double to about $50 million in 2017. Management sees line of sight to $100 million annual revenues by 2019.

In the signal integrity business, PON and Basestation are expected to recover into first half. The analyst noted that CDR should continue to benefit from the transition to 100G, with single lambda drives another layer of growth and GM expansion in 2018.

“With Samsung risk minimized (mid-single digits percent sales), favorable NT PON and BST trends, and LT optical, LoRa and wireless charging growth drivers, risk/reward looks favorable at current levels,” Schafer added.

At last check, shares of Semtech rose 8.10 percent to $30.38, with Schafer’s target price amounting to $36. About 1.77 million shares of Semtech changed hands versus its three-month average volume of 420.98 thousand shares.