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Microchip (MCHP) Hits 52-Week High: What's Behind the Rally?

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Shares of Microchip Technology, Inc. (MCHP - Free Report) rallied to a new 52-week high of $100.50 on Mar 12, closing marginally lower at $100.24. The company has a market capital of $19.99 billion.

Notably, the stock has returned 34.6% in the past year, substantially better than the industry’s rally of 25.6%. The momentum can be attributed to accretive acquisitions and collaborations that aid product innovation. Moreover, impressive sales driven by robust demand for 8-bit, 16-bit and 32-bit microcontrollers remains a key growth catalyst.

Microchip has an impressive earnings surprise history. The company outpaced the Zacks Consensus Estimate in all the trailing four quarters, delivering a positive average earnings surprise of 5.28%. The company has a long-term expected EPS growth rate of 14.6%.


Over the last 30 days, first quarter fiscal 2019 estimates were revised upward, resulting in the Zacks Consensus Estimate rising from $1.42 to $1.43 per share, representing a year-over-year growth of 9.16%.

Upbeat Q3 Results

Microchip reported third-quarter fiscal 2018 non-GAAP earnings of $1.36 per share, surpassing the Zacks Consensus Estimate by a penny. The figure improved 29.5% year over year.

The year-over-year upside was driven by higher net sales, which increased 12.8% from the year-ago quarter to $994.2 million. The Zacks Consensus Estimate for revenues is pegged at $992 million.

Accretive Acquisitions & Collaborations: Key Catalyst

Recently, Microchip announced that it will acquire Microsemi for $10.15 billion of total enterprise value. Microchip’s interest in Microsemi can be primarily attributed to Microsemi’s expanding product portfolio, growth in broadband gateway end markets and improving conditions in data centers.

Apart from a robust portfolio, the buyout will expand the company’s total addressable markets. Strong demand for Microsemi’s solutions in Data Center, Communications, Defense and Aerospace markets bodes well for Microchip in the long haul. The deal is expected to be immediately accretive for Microchip on a non-GAAP basis.

Acquisitions like SMSC, ISSC, Micrel and Atmel have expanded Microchip’s product portfolio, which continue to aid top-line growth. Collaboration with Amazon Web services (“AWS”) to support AWS offerings as well as develop secure cloud systems augurs well for the company.

Notably, Microchip is winning market share as reflected by SIA numbers. The company had a market share of 15.84% in the third quarter of fiscal 2018, which expanded 138 basis points (bps) from the year-ago quarter.

Product Innovations Caters to Strong Demand

Microchip recently launched two new microcontroller families, called PIC16F18446 and ATmega4809 designed to enhance customer experience.

Microchip also unveiled MPLAB PICkit 4 to ensure a cost effective, feature rich, debugging and programming solution. The In-Circuit debugger supports Microchip's latest digital signal controllers, microcontrollers and cryptography enabled devices.

Further, the company had launched a single-wire, Electrically Erasable Programmable Read-Only Memory (“EEPROM”) device in the third quarter. The product helps in remote identification of electronic components.

It also came up with Crypto Authentication device, which allows developers to integrate hardware-based security to their designs. Additionally, it announced a third-party security design partner program.

Microchip also stated that it has improved response time for critical system events to help designers create CAN-based applications, without any added complexity. This will help the company to acquire new customers and boost revenues.

The company continues to capitalize on enhancing its solution range and improving capacity constraints along with design wins. This will enable the company to have a competitive edge in the semiconductor industry.

Zacks Rank and Key Picks

Microchip carries a Zacks Rank #3 (Hold).

Some better-ranked stocks trading at 52-week high include Paycom Software (PAYC - Free Report) , Lam Research Corporation (LRCX - Free Report) and ON Semiconductor (ON - Free Report) . While Lam Research and Paycom sport a Zacks Rank #1 (Strong Buy), ON Semiconductor carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Paycom, Lam Research and ON Semiconductor are currently pegged at 25.75%, 14.85% and 12.23%, respectively.

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