SMART's Diversification Strategy Paying Off Through the Trough, Analyst Says

  • Rosenblatt analyst Kevin Cassidy maintained SMART Global Holdings, Inc SGH with a Buy and cut the price target from $45 to $38.
  • SGH’s diversification strategy is paying off in maintaining profitability while its highest gross margin business, Cree LED, and lowest gross margin business, Brazil Memory, work through a significant weakening in demand. 
  • Offsetting the weakness was 52% sequential growth in IPS revenue and steady demand for Specialty Memory. 
  • Also ReadSMART Analyst Slashes Price Target By 25% Citing Macro Challenges In LED & Memory Segments
  • Looking out to the November quarter, there is more of the same mix, including an extra $35 million - $40 million for IPS from newly acquired Stratus Technologies. 
  • Stratus will likely lift the non-GAAP gross margin by 200bps in the quarter. 
  • In his view, the more cyclical exposed businesses, LED and Brazil, are at trough levels while the secular businesses, IPS and Specialty Memory, keep the company well positioned for long-term profitable growth. 
  • Price Action: SGH shares traded lower by 6.23% at $15.95 on the last check Wednesday.
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