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Opportunity to Pick Up Maxim
Maxim Integrated Products, Inc. (MXIM - Analyst Report) is an OEM of semiconductor analog and mixed signal ICs. March quarter revenue was down significantly. Forward guidance is for a 0.5%-4.6% revenue increase in Q4. Management did not announce too many details on the quarter, and expects to restate results from 2000 through 2006 pursuant to the stock option issue.
Management has announced the reduction of capital expenditure in 2008 and 2009, in response to the broad macro weakness. The stock is trading at five-year lows, indicating strong upside potential when these issues are resolved.
MXIM shares are currently trading at a 12.1x multiple of our 2008 EPS estimate (P/E). Management has refocused the business around the consumer and computing markets, although it remains active in other markets such as industrial and communications as well. The change of focus has started to tell on margins. Management expects to offset this negative impact through volume gains and cost containment.
It remains to be seen whether the new management will be able to establish the company in its new growth path. We feel positive about the company's prospects, given the latest report by the Semiconductor Industry Association (SIA) and other independent research, that clearly name the consumer and computing markets as the near-term growth drivers for the industry.
However, while management appears optimistic about leverage in the operating model, we are unable to comment since our estimated net income continues to decline. We expect the stock to trade higher as the margin issues and macro impact plays out, and the company's true potential comes to light. Management has also indicated that post-restatement, it would consider using the growing cash balance for substantial share buyback and/or leveraging the balance sheet.
We believe there is room for significant appreciation in the share price. We maintain our Buy rating on MXIM shares and reiterate our target price of $30, which corresponds to a 17.9x P/E multiple.
Sejuti Banerjea contributed to this report.
Read the full analyst report on MXIM.
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| Market Summary | Jul 31, 2010 13:23 pm ET |
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