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M/A-Com (MTSI) Up 7.4% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for M/A-Com (MTSI - Free Report) . Shares have added about 7.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is M/A-Com due for a pullback? 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 drivers.

MACOM's Q1 Earnings Beat, Revenues Up Y/Y

MACOM Technology Solutions Holdings reported first-quarter fiscal 2021 non-GAAP earnings of 46 cents per share, beating the Zacks Consensus Estimate by 9.5%. Further, the bottom line improved 15% sequentially. Also, the figure jumped significantly from 7 cents per share in the year-ago quarter.

Revenues of $148.5 million surpassed the Zacks Consensus Estimate of $147.9 million. Moreover, the top line rose 0.9% sequentially and 24.7% from the year-ago quarter.

The company’s solid momentum across data center, telecommunications, and industrial and defense markets drove the top line in the reported quarter.

Further, the strong performance delivered by the company across all the operating regions — United States, China, the Asia-Pacific and others — contributed well.

The company expects to strengthen 5G network deployments to continue driving revenue growth from the telecommunications market in the days ahead. Further, the rapid adoption of cloud-based services is likely to continue to aid the top line from the data center market.

Also, robust product offerings in the industrial and defense markets are other positives.

Top Line in Detail

Telecom Market: The company generated revenues of $51.5 million (34.7% of total revenues) from this market, up 13% from the year-ago quarter.

Data Center Market: This market generated revenues worth $35.5 million (23.8% of total revenues), which rose53.6% from the prior-year quarter.

Industrial & Defense Market: MACOM generated revenues of $61.6million (41.5% of total revenues), which grew 22.1% year over year.

Operating Details

In first-quarter fiscal 2021, non-GAAP gross margin was 57.5%, which expanded 400 basis points (bps) year over year.

In the reported quarter, non-GAAP operating expenses were $47.6 million, which declined 6.1% year over year. As a percentage of revenues, the figure contracted significantly from 42.6% in the prior-year quarter to 32.1%.

Consequently, the company’s non-GAAP operating margin was 25.4%, which significantly expanded from 10.9% in the prior-year quarter.

Balance Sheet & Cash Flow

As of Jan 1, 2021, cash equivalents and short-term investments were $354.8 million, up from $333.1 million as of Oct 2, 2020. Inventories were $89 million, down from $91.6 million in the last reported quarter.

Long-term debt obligations, excluding the current portion, were $650.9 million in the fiscal firstquarter compared with $652.2million in the previous quarter.

Cash generated from operations was $34.8 million, down from $74.4 million in the last quarter.

Further, the company’s free cash flow in the reported quarter was $31.9 million compared with $69.5 million in the prior quarter.

Guidance

For second-quarter fiscal 2021, MACOM expects revenues between $148 million and $152 million.

Further, the company’s adjusted earnings per share are anticipated to be 46-50 cents.

Moreover, non-GAAP gross margin is anticipated to be 57-59%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 19.14% due to these changes.

VGM Scores

At this time, M/A-Com has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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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