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M/A-Com (MTSI) Down 17.7% Since Last Earnings Report: Can It Rebound?

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A month has gone by since the last earnings report for M/A-Com (MTSI - Free Report) . Shares have lost about 17.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is M/A-Com due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

MACOM's Q3 Earnings Beat, Revenues Up Y/Y

MACOM Technology Solutions Holdings reported third-quarter fiscal2020 non-GAAP earnings of 33 cents per share, beating the Zacks Consensus Estimate by 57.1%. Further, the bottom line improved significantly by 94.1% sequentially. Notably, the company had reported a loss of 42 cents in the year-ago quarter.

Revenues of $137.3 million surpassed the Zacks Consensus Estimate of $131 million. Notably, the figure advanced 8.6% sequentially and 26.7%from the year-ago quarter.

The top line was driven by solid demand across data center and telecom markets. Further, healthy demand condition across industrial and defense market remained a tailwind.

The company expects strong 5G network deployments, rising demand for its RF and microwave products, strength across defense applications and growing data center traffic to continue driving its top-line growth in the fiscal fourth quarter.

End-Market in Details

Telecom Market: The company generated revenues of $56.8 million (41.4% of total revenues) from this market, up 10% sequentially. Strong demand for 5G wireless RF products, 5G front-haul and mid-haul HBA products drove the company’s top line in this market. Further, growing momentum across metro long-haul product lines and improving GPON market contributed to the performance.

Data Center Market: This market generated revenues of $32.4 million (23.6% of total revenues), which improved 21% from the prior quarter.Growing proliferation of cloud services benefited both domestic and international deployments of the company during the reported quarter. Moreover, its high-performance analog product lines remained major positives.

Industrial &Defense Market: MACOM generated revenues of $48million (35% of total revenues), which remained flat on a sequential basis.

Operating Details

In third-quarter fiscal 2020, non-GAAP gross margin was 55.5%, which expanded significantly from 39.4% in the year-ago quarter.

In the reported quarter, non-GAAP operating expenses were$46.9 million which declined 27.7% year over year. As a percentage of revenues, the figure contracted significantly from 59.9% in the prior-year quarter to 34.2%.

Consequently, the company’s non-GAAP operating income was $29.3 million against operating loss of $22.3 million in the year-ago quarter. Further, operating margin was at 21.4% in the reported quarter.

Adjusted EBITDA was $36.4 million against ($15 million) in the prior-year quarter. EBITDA margin was 26.5% in the fiscal third quarter.

Balance Sheet & Cash Flow

As of Jul 3, 2020, cash equivalents and short-term investments were $265.1 million, up from $221.6million as of Apr 3, 2020. Inventories were $95.6 million, down from $99.6million a year ago.

Long-term debt obligations, excluding current portion, were $652.9 million in the fiscal third quarter compared with $653.7million in the previous quarter.

Cash generated from operations was $34.1 million, up from $25.3 million in the last quarter.

Further, the company’s free cash flow in the reported quarter was$30.4 million compared with $20.5 million in the prior quarter.

Guidance

For fourth-quarter fiscal 2020, MACOM expects revenues between $144 million and $148 million.

Further, the company’s adjusted earnings per share is anticipated in the range of 36 cents to 40 cents.

Moreover, non-GAAP gross margin is anticipated in the range of 55-57%.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended upward during the past month. The consensus estimate has shifted 101.69% due to these changes.

VGM Scores

Currently, M/A-Com has a great Growth Score of A, a grade with the same score on the momentum front. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. Notably, M/A-Com has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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