Microsemi Corporation MSCC could be the next talked-about name in semi stocks. Goldman Sachs analyst Mark Delaney upgraded shares of the company from Neutral to Buy with a $55 price target, suggesting a 16-percent upside (see his track record here).
The upgrade was prompted by a strong potential for sales growth in 2018 and its discount relative to peers, as well of chatter last year of a possible acquisition.
3 Catalysts
Delaney sees growth potential in several of Microsemi’s business segments.
Defense, which currently accounts for about 15 percent of sales, will benefit from proposed U.S. defense spending increases. The communications and data center segments are also well positioned.
The company’s book-to-bill ratio was above one last quarter as well, thanks in part to solid satellite bookings.
Microsemi is also set up for multiple and margin expansion thanks to several key product cycles producing above-average margins and de-leveraging potential.
The stock currently trades as a 22-percent discount to its peers on P/E for calendar 2016 and a 4-percent discount on EV/EBITDA.
The company also has a 10-percent free cash flow yield.
Last, Delaney believes Microsemi could be a good candidate for acquisition by a larger competitor.
Skyworks Solutions Inc SWKS was reported to be interested in a takeover back in November.
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