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Infineon Continues to Face Headwinds: Should You Offload?
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Are you still holding shares of Infineon Technologies AG (IFNNY - Free Report) in your portfolio? If yes, then it’s the best time to dump the stock as chances of favorable returns in the near term are slim.
The stock has underperformed the industry in the past three months. Infineon’s shares have registered a return of 5.4% compared with the industry’s growth of 8.9%.
Let’s delve deeper and try to find out what is taking this Zacks Rank #5 (Strong Sell) company down.
Growth Impediments
Infineon designs, develops, manufactures and markets semiconductors as well as complete systems solutions. The company reported fourth-quarter fiscal 2017 adjusted earnings of 26 cents per share, missing the Zacks Consensus Estimate by a nickel. Although, revenues increased 8.7% year over year to $2.15 billion in the quarter, it lagged the Zacks Consensus Estimate of $2.17 billion.
Moreover, management guidance was disappointing as first-quarter fiscal 2018 revenues are projected to decline.
The company continues to encounter difficulties with the cyclical nature of the semiconductor industry that witnesses price erosion and evolving standards. Further, Infineon faces strong seasonal fluctuations in product supply and demand, and any adversity in seasonal conditions may affect sales, going forward.
Further, intensifying competition in the automotive and power market segments is a major concern. Additionally, weak Chip Card & Security (“CCS”) revenues will continue to hurt top-line in the near term.
Estimates Moving South
Estimates for the current year have moved south in the past 60 days. The company’s current year earnings estimates moved down by 11 cents to $1.15 per share. Given its weak fundamentals and an unfavorable Zacks Rank, it is likely to keep underperforming in the quarters ahead.
Low Return
Given the other unattractive attributes like low return on equity (“ROE”), low return on capital (“ROC”) and low return on assets (“ROA”) the stock looks very unappealing. Infineon currently trades at a ROE of 18%, much lower than the industry’s average of 22.3%. Moreover, the company has a ROA of 10.2%, much lower than the industry’s average of 12.4%. Notably, the company has an ROC of 13.5% compared with the industry’s average of 16.2%.
Negative Earnings Surprise History
Infineon has an unimpressive earnings surprise history. The company underperformed the Zacks Consensus Estimate in the trailing four quarters, recording a negative average earnings surprise of 9.1%.
Bottom Line
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from Infineon shares until its Zacks Rank and estimates improve.
NVIDIA, Western Digital and Analog Devices have a long-term earnings growth rate of 10.3%, 25.1% and 10.4%, respectively.
Zacks Editor-in-Chief Goes ""All In"" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Image: Bigstock
Infineon Continues to Face Headwinds: Should You Offload?
Are you still holding shares of Infineon Technologies AG (IFNNY - Free Report) in your portfolio? If yes, then it’s the best time to dump the stock as chances of favorable returns in the near term are slim.
The stock has underperformed the industry in the past three months. Infineon’s shares have registered a return of 5.4% compared with the industry’s growth of 8.9%.
Let’s delve deeper and try to find out what is taking this Zacks Rank #5 (Strong Sell) company down.
Growth Impediments
Infineon designs, develops, manufactures and markets semiconductors as well as complete systems solutions. The company reported fourth-quarter fiscal 2017 adjusted earnings of 26 cents per share, missing the Zacks Consensus Estimate by a nickel. Although, revenues increased 8.7% year over year to $2.15 billion in the quarter, it lagged the Zacks Consensus Estimate of $2.17 billion.
Moreover, management guidance was disappointing as first-quarter fiscal 2018 revenues are projected to decline.
The company continues to encounter difficulties with the cyclical nature of the semiconductor industry that witnesses price erosion and evolving standards. Further, Infineon faces strong seasonal fluctuations in product supply and demand, and any adversity in seasonal conditions may affect sales, going forward.
Further, intensifying competition in the automotive and power market segments is a major concern. Additionally, weak Chip Card & Security (“CCS”) revenues will continue to hurt top-line in the near term.
Estimates Moving South
Estimates for the current year have moved south in the past 60 days. The company’s current year earnings estimates moved down by 11 cents to $1.15 per share. Given its weak fundamentals and an unfavorable Zacks Rank, it is likely to keep underperforming in the quarters ahead.
Low Return
Given the other unattractive attributes like low return on equity (“ROE”), low return on capital (“ROC”) and low return on assets (“ROA”) the stock looks very unappealing. Infineon currently trades at a ROE of 18%, much lower than the industry’s average of 22.3%. Moreover, the company has a ROA of 10.2%, much lower than the industry’s average of 12.4%. Notably, the company has an ROC of 13.5% compared with the industry’s average of 16.2%.
Negative Earnings Surprise History
Infineon has an unimpressive earnings surprise history. The company underperformed the Zacks Consensus Estimate in the trailing four quarters, recording a negative average earnings surprise of 9.1%.
Bottom Line
We expect the aforementioned factors to hurt the company’s near-term profitability. Hence, we recommend investors to stay away from Infineon shares until its Zacks Rank and estimates improve.
Stocks to Consider
NVIDIA Corporation (NVDA - Free Report) , Western Digital Corporation (WDC - Free Report) and Analog Devices, Inc. (ADI - Free Report) are some better-ranked stocks in the same sector. All the three companies sport a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
NVIDIA, Western Digital and Analog Devices have a long-term earnings growth rate of 10.3%, 25.1% and 10.4%, respectively.
Zacks Editor-in-Chief Goes ""All In"" on This Stock
Full disclosure, Kevin Matras now has more of his own money in one particular stock than in any other. He believes in its short-term profit potential and also in its prospects to more than double by 2019. Today he reveals and explains his surprising move in a new Special Report.
Download it free >>