Outlook for Nat'l Semi Favorable

National Semiconductor (NSM - Analyst Report) is an OEM of analog and mixed signal integrated circuits. May quarter revenue was in-line with consensus expectations, although the EPS exceeded.

Forward revenue guidance is flat to up 3% Q1. New higher-margin products continue to grow in the mix, and management has refocused R&D [research & development] into areas that should sustain these margins and even expand from current levels. Valuation remains attractive in our opinion. Consequently, we are reiterating our Buy rating on NSM shares.

NSM shares are currently trading at a 13.8x multiple of share price to our 2009 earnings estimate (P/E). National is highly exposed to the seasonal handsets business, which results in typical softness in the first quarter. While the industrial business usually increases in Q1, this is not such a significant portion of the company's sales.

Despite the orders and backlog increasing in the last quarter, the guidance for flat to slightly higher revenue indicates a slower turns business. Management's caution can be traced to uncertain consumer spending in the face of a slowing economy. However, the company seems to be more than making up on the margin front, as profitability has shown very consistent improvement. We are reiterating our target price of $29, which corresponds to a 17.1x P/E (2009 earnings).

Read the full analyst report on NSM