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Bull of the Day: SMART Global Holdings (SGH)

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SMART Global Holdings (SGH - Free Report) is a Zacks Rank #1 (Strong Buy) that designs and manufactures electronic products focused in memory and computing technology areas. The company is engaged in the computer, industrial, networking, telecommunications, aerospace and defense markets.

SGH has been on a steady climb all year, but recent earnings took the stock to all time highs. Analysts are taking estimates higher as the stock looks to have a promising Q3 and FY2021 ahead.

More About the Company

SMART Global is headquartered in Newark, CA and has over 1700 full-time employees. The company operates in the U.S., Europe, Asia and Latin America.  

SGH primarily offers DRAM modules and flash memory products, but also provides supply chain services.

The company has a market cap of $1.3 Billion and has Zacks Style Scores of “A” in Momentum and “B” in Growth. The stock pays no dividend and has a Forward PE of 14.

Q2 Earnings and Guide

Earlier this month, the company reported Q2 earnings, seeing a 9% EPS surprise to the upside. The company saw $0.87 v the $0.80 expected and revenue came in at $304.0M v the $296M expected.

SGH also raised their Q3 guidance and now sees a range of $1.00-1.20 v the $0.88 expected. The revenue was guided up as well, now at a range of $400-430M v $314M expected. The company also guided gross margins 19-21% and EBITDA came in at $31M, up almost 39% year over year.  

The earnings beat was the fifth in a row after the company struggled for the better part of 2019.

Estimates and Upgrades

Over the last 7 days, estimates have jumped higher. For the next quarter, we have seen estimates raised by 16%, from $1.05 to $1.22. For next year, we have seen a 27% move higher in that same time frame.

A couple of analysts have taken price targets higher since earnings, with Barclays resuming SGH with an Overweight rating and a $60 target. Additionally, Stifel hiked their target to $62.50 from $55.   

Stifel cited Penguin Computing and the 30% sequential growth as reasoning for the hike. The firm believes that the strong commercial and Federal pipeline will allow momentum to continue.

Technicals

The stock is already up over 50% on the year, so the recent earnings move higher is starting see some profit taking. If the stock can’t manage to get back to recent highs, investors should look for some levels to enter the stock on market pullbacks.  

With the stock currently trading at $54, the momentum area to buy would be the 21-day moving average. This currently sits just over $48 and aligns with a 61.8% retracement level drawn from March lows to post-earnings highs.

For those looking for larger pullbacks, watch the 50-day MA at $46.50. The 200-day is way down at $34 and likely out of reach with a stock this strong.

Bottom Line

SMART Global is well positioned for the back half of the year, both fundamentally and technically. The momentum and demand for its products and services are strong, which will cause investor interest going forward.

Investors should look for buying opportunities on pullbacks and look for the stock’s momentum to continue higher over the next couple quarters.

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