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Cypress Semiconductor Falls after Morgan Stanley Downgrade
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Cypress Semiconductor Corporation stock was down 1.93% at the end of yesterday’s trading after Morgan Stanley downgraded its rating from "equal weight" to "underweight". Morgan Stanley’s price target on the stock is $12.
Why the Downgrade
Morgan Stanley doesn’t expect positive estimate revisions, especially after the company’s analyst day. According to analyst Craig Hettenbach, the company trades at a premium to its peers despite lower gross margins.
Notably, at its Annual Day, Cypress stated that it expects 43% gross margin at the end of 2017 and 47.9% at the end of 2018. It expects revenues to grow 7% to 9% annually, compounded through 2021, which compares favorably with the semiconductor industry’s growth rate of 3% to 4%.
Cypress shares appreciated 3.9% over the last one month compared with the Zacks Semiconductor - Communications industry’s gain of 1.2%.
Considering the encouraging revenue growth projections and impressive share price performance, the gross margin guidance appears a bit conservative.
Bottom Line
Cypress is in the process of transforming its manufacturing operations into a fab-light business model. The company has been taking steps toward streamlining its workforce and improving profitability in response to the challenging economic environment.
These actions include selling non-core wafer fabrication operations and consolidating or eliminating numerous product lines. This move could improve its cost structure and unlock value, going forward.
For the fourth quarter of 2016, the company reported adjusted earnings of 6 cents per share, missing the Zacks Consensus Estimate by a penny. Pro forma gross margin was 40.1%, down 40 basis points (bps) sequentially. Non-GAAP revenues of $530.2 million were flat sequentially.
Notably, the projected long-term growth rates of TDK, Acxiom and PC Connection are 10.75%, 15% and 7%, respectively.
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Cypress Semiconductor Falls after Morgan Stanley Downgrade
Cypress Semiconductor Corporation stock was down 1.93% at the end of yesterday’s trading after Morgan Stanley downgraded its rating from "equal weight" to "underweight". Morgan Stanley’s price target on the stock is $12.
Why the Downgrade
Morgan Stanley doesn’t expect positive estimate revisions, especially after the company’s analyst day. According to analyst Craig Hettenbach, the company trades at a premium to its peers despite lower gross margins.
Notably, at its Annual Day, Cypress stated that it expects 43% gross margin at the end of 2017 and 47.9% at the end of 2018. It expects revenues to grow 7% to 9% annually, compounded through 2021, which compares favorably with the semiconductor industry’s growth rate of 3% to 4%.
Cypress shares appreciated 3.9% over the last one month compared with the Zacks Semiconductor - Communications industry’s gain of 1.2%.
Considering the encouraging revenue growth projections and impressive share price performance, the gross margin guidance appears a bit conservative.
Bottom Line
Cypress is in the process of transforming its manufacturing operations into a fab-light business model. The company has been taking steps toward streamlining its workforce and improving profitability in response to the challenging economic environment.
Cypress Semiconductor Corporation Revenue (TTM)
Cypress Semiconductor Corporation Revenue (TTM) | Cypress Semiconductor Corporation Quote
These actions include selling non-core wafer fabrication operations and consolidating or eliminating numerous product lines. This move could improve its cost structure and unlock value, going forward.
For the fourth quarter of 2016, the company reported adjusted earnings of 6 cents per share, missing the Zacks Consensus Estimate by a penny. Pro forma gross margin was 40.1%, down 40 basis points (bps) sequentially. Non-GAAP revenues of $530.2 million were flat sequentially.
Zacks Rank and Stocks to Consider
Currently, Cypress is a Zacks Rank #3 (Hold) stock. Better-ranked stocks in the broader technology space include TDK Corp (TTDKY - Free Report) , Acxiom Corporation and PC Connection, Inc. (CNXN - Free Report) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Notably, the projected long-term growth rates of TDK, Acxiom and PC Connection are 10.75%, 15% and 7%, respectively.
Zacks’ Best Private Investment Ideas
In addition to the recommendations that are available to the public on our website, how would you like to follow all Zacks' private buys and sells in real time?
Our experts cover all kinds of trades… from value to momentum . . . from stocks under $10 to ETF and option moves . . . from stocks that corporate insiders are buying up to companies that are about to report positive earnings surprises. You can even look inside exclusive portfolios that are normally closed to new investors. Starting today, for the next month, you can have unrestricted access. Click here for Zacks' private trades >>