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Bull of the Day: Diodes Inc. (DIOD)

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The semiconductor industry has been one of the best performing market segments in 2017, and our Zacks Bull of the Day, Diodes Inc. (DIOD - Free Report) has exposure to several sub segments within the broader semiconductor industry.  This diversity gives Diodes Inc. the ability to capitalize on the increasingly improving market conditions within the technology industry.  

This Zacks Rank #1 (Strong Buy) is a leading manufacturer and supplier of high-quality discrete and analog semiconductor products, primarily to the communications, computing, industrial, consumer electronics and automotive markets. The Company's corporate sales, marketing, engineering and logistics headquarters is located in Southern California, with two manufacturing facilities in Shanghai, China, a wafer fabrication plant in Kansas City, Missouri, engineering, sales, warehouse and logistics offices in Taipei, Taiwan and Hong Kong, and sales and support offices throughout the world.

Recent Earnings Report

In their most recent reported quarter, Q1 17 the company beat both the Zacks consensus earnings and revenue estimates.  Specifically, management reported year over year gains in revenues +6.1%, GAAP gross profit +15.1%, and Non-GAAP adjusted net income per diluted share +16.7%.  Further, the company achieved $45.6 million of cash flow from operations, and $26.5 million in free cash flow while paying down $11.0 million in long-term debt.  

Management’s Take

According to Dr. Keh-Shew Lu, President and Chief Executive Officer, “Revenue in the quarter was at the high end of guidance, increasing almost 2 percent sequentially as compared to typical seasonality of down about 5 percent. Sales in Europe were particularly strong with a resurgence in revenue from the industrial market, combined with strengthening demand in North America. Additionally, our automotive revenue continued to grow from the record level achieved last year, resulting in growth of almost 25 percent over the prior year quarter.  Also notable in the quarter, gross margin exceeded our guidance and surpassed 31 percent. The improvement was due to increased loading at our manufacturing facilities as a result of the stronger business environment as well as better pricing, in particular for analog products acquired from Pericom. Our KFAB facility is up and running with stabilized monthly output attained in March.”

Looking forward, Dr. Keh-Shew Lu stated, “As we look to the second quarter, our business as well as the overall market are showing signs of continued strength, resulting in our expectation of 10 percent sequential growth and 33 percent non-GAAP gross margin at the mid-point. With a broadened product portfolio and an expanded sales channel following our integration of Pericom, we are well positioned to fully capitalize on these improving market conditions.”

DIOD Price Performance vs. the S&P 500

The graph below shows the overall performance of DIOD against the S&P 500, and as you can see, DIOD has significantly outperformed the broader market over the past 12 months.

Increasing Earnings Estimates

Over the past 30 days, we have seen earnings estimates for Q2 17, Q3 17, FY 17 and FY 18 all improve; Q2 17 rose from $0.28 to $0.36, Q3 improved from $0.34 to $0.43, FY 17 jumped up from $1.00 to $1.25, and FY 18 was lifted from $1.38 to $1.50.

Bottom Line

Diodes exposure to the communications, computing, industrial, consumer electronics and automotive markets give it a multitude of areas for growth.  Further, with the integration of Pericom, we should expect to see sales blossom through 2018.

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