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Microchip Technology

MCHP

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Microchip Technology Inc. (MCHP - Analyst Report) has been consistently distributing dividends since fiscal 2003 and currently has a solid 4.0% dividend yield. Shares of this Zacks #2 Rank (Buy) semiconductor manufacturer have been trading higher on the successful completion of the SMSC acquisition, a distribution agreement with Arrow and new product launches.

Earnings Flashback and Other Driving Catalysts

On August 2, Microchip Technology Inc. reported fiscal first quarter 2013 adjusted earnings per share (including stock-based compensation) of 43 cents, 2.3% behind the Zacks Consensus Estimate of 44 cents and 15.7% below the year-ago earnings. Net revenues were down 6.0% year over year to $352.1 million.

However, things are expected to improve in the fiscal second quarter 2013 as management sees net sales between $412 million and $430 million, up 17% – 22% sequentially. This includes a contribution of about $65-$70 million from Standard Microsystems Corporation (SMSC) products. EPS is forecasted between 50 cents and 52 cents, an improvement from 48 cents in the fiscal first quarter.

Along with the earnings release, Microchip Technology announced the acquisition of Standard Microsystems Corporation (SMSC) for $37 per share in cash. The acquisition expands the company’s smart mixed-signal connectivity solutions for embedded applications in markets such as automotive, industrial, computing, consumer and wireless audio. Management expects the acquisition to be accretive to the bottom-line in the fiscal second quarter of 2013.

Recently, Microchip entered into a global distribution agreement with Arrow Electronics, Inc., (ARW), whereby the former’s broad range of embedded semiconductors and solutions will be offered through Arrow’s components portfolio and Nu Horizons Electronics. Also, Microchip came up with four new devices for its serial SRAM portfolio.

Earnings Estimates Move Higher

Over the last 30 days, the Zacks Consensus Estimate for fiscal 2013 moved up by 1.1% to $1.90 per share. Out of six total estimates, three moved higher and one moved lower in that time. Meanwhile, the Zacks Consensus Estimate for fiscal 2014 increased 6.8% to $2.21 per share as all five estimates moved north.

These estimates represent year-over-year earnings growth of 10.3% for fiscal 2013 and 16.3% for fiscal 2014.

Dividend

Regular dividend payments have been one the company’s most attractive features since it started dividend distribution in 2003. A 5-Year average dividend yield for Microchip Technology stands at 4.5%, while the stock currently yields a solid 4.0% based on the annual dividend rate of $1.40 per share.

Valuation

Microchip Technology is currently trading at a forward P/E of 18.8x compared with 17.0x for the peer group. The company’s PEG ratio is currently at 1.67. ROE stands at 17.1% compared with the peer group average of 17.8%.

As can be observed from the Price & Consensus chart below; after plummeting in 2009, the company revived and reached a new peak in the mid 2011. Prospects appear bright as the Zacks Consensus Estimates are trending higher for future years.

Despite weak fiscal first quarter results, its regular dividend payouts, strategic acquisitions, new product launches and promising outlook make Microchip an attractive investment option.

Microchip Technology is headquartered in Chandler, Arizona, and was incorporated in 1989. The $6.9 billion company operates in the semiconductor industry and develops and manufactures microcontrollers, memory and analog and interface products for embedded control systems.

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