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Semtech (SMTC) Up 14% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Semtech Corporation (SMTC - Free Report) . Shares have added about 14% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is SMTC 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 catalysts.

Semtech’s Q4 Earnings Beat Estimates, View Strong

Semtech Corporation reported decent fiscal fourth-quarter 2018 results with earnings beating the Zacks Consensus Estimate and revenues matching the same.

Non-GAAP earnings of 42 cents per share beat the consensus mark by 1 cent and increased 23% sequentially and 14% year over year. Earnings came toward the higher end of the guided range of 40-42 cents per share.

Revenues of $140.6 million decreased 6.4% sequentially but increased 0.4% from the prior-year quarter. Revenues were within the guided range of $138-$142 million and more or less in line with the Zacks Consensus Estimate.
 
The sequential decrease in revenues was due to inventory reductions at smartphone customers and softness in the China base station market.

Nevertheless, shares have gained 18% since the date of release of quarterly results on Mar 14. Over the past year, shares have gained 19%, underperforming the industry’s 23.6% rally.

In the reported quarter, the company saw strong demand in the computing end-market, partially offset by weakness in other markets.

The company’s improved profitability was driven by differentiated growth drivers and diversification strategy. Key growth drivers for Semtech are product differentiation, operational flexibility, and a specific focus on fast-growing segments and regions.

The numbers in detail:

Revenues by End Market


Sales to enterprise computing end market represented 34% of total revenues and were up sequentially.

However, sales to high-end consumer market represented 28% of total net revenues and were down sequentially.  Roughly 19% of high-end consumer revenues were attributable to mobile devices and 9% to other consumer systems.  

Also, industrial and communications end markets witnessed weak demand and both decreased sequentially, representing 27% and 11% of total revenues, respectively.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 45% to total revenues and were flat sequentially. The strong demand for 100-gigabit per second data center and recovery in passive optical network (PON) demand were partially offset by ongoing weakness from wireless base station customs. Demand for PON products increased sequentially, led by 2.5G and 10G PON platforms.

Protection Product Group represented 28% of total revenues and was down sequentially. The decrease was due to inventory cut by its largest smartphone customer.

Wireless and Sensing Product Group was down 19% sequentially but up 19% year over year, contributing 18% to total revenues. The sequential decline was due to lower demand from consumer and industrial markets.

Power and High-Reliability Product Group contributed 9% to total revenues and increased 5% sequentially.

Distribution sales represented approximately 66% of total revenues, while direct sales accounted for the remaining 34%.

Bookings

During the quarter, bookings increased sequentially, accounting for roughly 46% of shipments. Book-to-bill ratio was above 1.

Margins and Net Income

Non-GAAP gross margin was 61.4%, up 10 basis points (bps) sequentially and 90 bps from the year-ago quarter.  

Semtech’s adjusted operating expenses of $51.3 million decreased 3.5% sequentially and 1.7% year over year. As a percentage of sales, both SG&A and product development & engineering expenses increased from the prior-year quarter.

The net result was an operating margin of 25.3% that was down 210 bps sequentially but increased 160 bps year over year.

On a GAAP basis, Semtech recorded a net loss of $1.3 million against net income of $8 million a year ago. On a non-GAAP basis, the company recorded net income of $28.5 million compared with $24.5 million a year ago.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $307.9 million, up from $291.1 million in the previous quarter. Accounts receivables were $53.2 million, down from $66.5 million in the prior quarter. Long-term debt was $211.1 million, down from $215.7 million in the previous quarter.

During the quarter, cash flow from operations was $33.1 million, capital expenditure was $7.2 million and free cash flow totaled $25.9 million.

Guidance

For fiscal first-quarter 2019, on a non-GAAP basis, management expects revenues in the range of $147-$153 million. This implies 7% sequential increase at the mid-point of the guided range.

Non-GAAP gross profit margin is expected within 61.0-61.5%. Management projects SG&A expenses within $26-$27.5 million, and research and development expenses of $25-$26 million.

Non-GAAP earnings per share are expected in the range of 45-47 cents. This implies a 10% sequential increase at the mid-point of the guided range.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There have been two revisions higher for the current quarter compared to one lower.

Semtech Corporation Price and Consensus

 

Semtech Corporation Price and Consensus | Semtech Corporation Quote

VGM Scores

At this time, SMTC has a nice Growth Score of B, though it is lagging a lot on the momentum front with an F. The stock was also 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 D. If you aren't focused on one strategy, this score is the one you should be interested in.

The company's stock is suitable solely for growth based on our styles scores.

Outlook

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




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