A month has gone by since the last earnings report for Semtech (SMTC Quick QuoteSMTC - Free Report) . Shares have added about 3.9% in that time frame, outperforming the S&P 500.

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

Semtech Q3 Earnings & Revenues Surpass Estimates

Semtech Corporation’s fiscal third-quarter 2021 non-GAAP earnings of 47 cents per share beat the Zacks Consensus Estimate by a penny. The reported earnings increased 9.3% sequentially and 14.6% year over year.

Non-GAAP revenues of $154.1 million increased 7% sequentially and 9% from the prior-year quarter. Revenues surpassed the Zacks Consensus Estimate by 2.82%.

The increase was driven by strong demand from the high-end consumer and industrial end markets, partially offset by softer demand from the infrastructure end market.

Management remains optimistic about the LoRa business amid the COVID-19 pandemic. As LoRa is ideally suited for applications such as contact tracing, distance tracking, hygiene and health monitoring, as well as occupancy management, the company expects to see further growth in the LoRa business.

Its key growth drivers are product differentiation, operational flexibility, and specific focus on fast-growing segments and regions.

Let’s delve into the numbers in detail:

Revenues by End Market

Sales to the infrastructure end market (including enterprise computing and communications end markets) — which represented 39% of its total revenues — decreased 13% on a sequential basis but increased 6% year over year. The increase was driven by a strong rebound in PON demand.

However, revenues from the industrial market increased 14% sequentially and 4% from the year-ago quarter. It represented 32% of total net revenues.

Also, sales to the high-end consumer market represented 29% of total revenues. Revenues increased 43% sequentially and 21% year over year. Roughly 19% of high-end consumer revenues were attributed to mobile devices and 10% to other consumer systems.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 40% to total sales. The reported figure decreased 14% sequentially but increased 5% from the prior year. The increase was driven by strength in data centers.

Revenues from its Protection Product Group represented 27% of the total revenues. The figure was up 25% sequentially and 3% year over year. The increase was driven by strong demand from Korean smartphone customers. Also, demand from North American smartphone customers remained solid.

Wireless and Sensing Product Group revenues, which contributed 33% to total revenues, increased 32% sequentially and 31% year over year. The increase was driven by record net sales of LoRa platform products.

Bookings

Net bookings increased sequentially and resulted in a book to bill above 1.

Margins and Net Income

Non-GAAP gross margin was 61.5%, down 30 basis points (bps) sequentially and 10 bps from the year-ago quarter. The decrease was due to a higher mix of consumer revenues.

Semtech’s adjusted selling, general and administrative expenses increased 14.5% year over year to $32.6 million. Also, product development and engineering expenses increased 0.09% from the year-ago quarter to $24.4 million.

Non-GAAP operating margin of 24.4% was up 20 bps sequentially and 40 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $262.3 million compared with$281.5 million in the fiscal second quarter. Accounts receivables were $58.7 million, up from $51.7 million in the fiscal second quarter. Long-term debt was $183.1 million, down from $187 million in the fiscal second quarter.

For the quarter, cash flow from operations was $28.4 million, capital expenditure amounted to $7.2 million and free cash flow totaled $21.2 million.

During the quarter, the company repurchased 439,921 shares for $24 million.

Guidance

For fiscal fourth-quarter 2021, management expects revenues in the range of $153-$163 million.

Non-GAAP gross profit margin is expected within 61-62%. Management projects SG&A expenses within $31-$32 million, and research and development costs in the range of $26.5-$27.5 million. Non-GAAP earnings per share are expected in the range of 45-51 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 5.1% due to these changes.

VGM Scores

At this time, Semtech has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. However, the stock was allocated a grade of F on the value side, putting it in the fifth quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of F. 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. It comes with little surprise Semtech has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.