For Immediate Release
Chicago, IL – May 30, 2018 – Zacks Equity Research highlights Texas Instruments (TXN - Free Report) as the Bull of the Day and Acacia Communications, Inc. (ACIA - Free Report) as the Bear of the Day. In addition, Zacks Equity Research provides analysis on Amtech Systems (ASYS - Free Report) and Nvidia (NVDA - Free Report) .
Here is a synopsis of all four stocks:
Bull of the Day:
Texas Instruments, a Zacks Rank #1 (Strong Buy) designs and manufactures semiconductor solutions for analog and digital embedded and application processing. It has two major segments: Analog & Embedded Processing. The Analog segment semiconductors change real-world signals such as sound, temperature, pressure or images, by conditioning them, amplifying them and often converting them to a stream of digital data that can be processed by other semiconductors, such as embedded processors. Embedded processing segment designed to handle specific tasks and can be optimized for various combinations of performance, power and cost, depending on the application.
The company recently reported Q1 18 earnings results where they beat the Zacks consensus earnings and revenue estimates. This was the ninth consecutive quarter where they either met or beat on both ends. Overall, the results were quite impressive. On a year over year basis, revenues rose by +11%, and EPS increased by +39%. Further, the company posted a +19% improvement in cash flow from operations while free cash flows grew by +17%. On a segment basis, Analog revenues increased by +14% while Embedded Processing revenues rose by +15%.
Management cited high demand for its products in both the Industrial and Automotive markets, and broad-based order strength as the big drivers behind the impressive quarterly results.
Most importantly for the long term outlook of the company, the Q1 results eased fears that semiconductor demand was decelerating. In the previous quarter there had been some concern that the semiconductor demand was hitting its peak cycle, but Q1’s performance, and strong Q2 guidance has eased those fears.
Going forward, management’s Q2 EPS and revenue guidance was just above the midpoints of the consensus estimates; EPS now between $1.19-1.39, and revenues ranging from $3.78-4.1 billion. Further, management commented that its operating tax rates would be lower for both 2019 and 2020 than previously expected; 16% for 2019 down from 18%, and 20% in 2018 down from 23%.
Bear of the Day:
Acacia Communications, Inc., a Zacks Rank #5 (Strong Sell) designs, develops, manufactures and markets communication equipment. The Company offers coherent optical interconnect products for cloud infrastructure operators and content and communication service providers. It operates primarily in the Americas, Europe, the Middle East, Africa and the Asia Pacific region. Acacia Communications, Inc. is headquartered in Maynard, Massachusetts.
Recent Earnings Report
The company reported Q1 2018 results in the beginning of May where they beat the Zacks consensus earnings and revenue estimates. But revenues fell by -36% year over year while earnings came in at -$0.03 compared to $0.86 in the year ago quarter.
Headwinds Facing ACIA
The Trump administration put a ban on China’s ZTE from purchasing US components because the company did not honor a previous deal. The US Commerce Department put the ban on after ZTE admitted that it violated sanctions against both North Korea and Iran. ZTE accounted for 20.4% of revenues for ACIA which is a huge blow to the top line for the company. While the administration has a potential deal on the table to reinstate ZTE’s ability to purchase U.S. components, the long term impact on ZTE’s orders is expected to be significant.
According to Raj Shanmugaraj, President and CEO, “While first quarter revenue, non-GAAP income and non-GAAP diluted EPS were in the high-end of our guidance ranges, the recent activation by the U.S. Department of Commerce of the denial order against ZTE is disappointing. Although the denial order will have an adverse impact on our business for the foreseeable future, we are prioritizing several initiatives and opportunities that we believe will help mitigate that impact.
"We continue to believe that the strength of our balance sheet, technology and product portfolio position us well for opportunities that are key to our future success.” Management also stated that “Our second quarter 2018 outlook assumes no revenue contribution from ZTE after the effective date of the ZTE denial order.”
3 Strong Buy Stocks from an Impressive Industry
As many investors know, there is an age-old saying that 50% of a stock’s price movement is the result of its group. Right now, one of our hottest groups is the “Semiconductor-General” industry, which is in the top 2% of industries based on the Zacks Industry Rank and contains some of the most elite options in the market.
For individuals who stick true to the aforementioned belief, we will highlight three of the strongest and most promising stocks within this industry, in hopes of guiding investors to a stock that holds its own merit, while being carried by the merit of the stocks surrounding it.
Amtech Systems, Inc.
Amtech Systems is a capital equipment maker and a current Zacks Rank #1 (Strong Buy) stock. It has seen absurdly positive share price movement over the past month, gaining 28.5% since May 3.
On top of its prestige Zacks Rank, Amtech Systems also currently sports an “A” grade for Value in our Style Scores system. The company holds a P/B ratio of 1.29, compared to an industry average 3.35, helping to show that its being traded at a discount to its peers. It also dominates the industry in P/CF, P/E, and P/S ratios, justifying its grade within this Style Scores category.
A Zacks Rank #1 (Strong Buy) and “A” grade in Value show this stock to be a prime purchase for the value investor looking to stay ahead of the curve. Looking into the history of the stock, Amtech Systems shares tend to peak and correct in cycles of three to five years, so investors can expect to ride this wave of increase for a period of time but should be wary of eventual cyclical concerns.
Texas Instruments Inc.
Texas Instruments is also currently a Zacks Rank #1 (Strong Buy), with analyst sentiment continually trending upwards. Share prices have increased 10% in the last month, with 12 out of 12 revising analysts adjusting their EPS estimates to the upside for the next quarter.
In terms of its Style Scores, its most impressive is Growth, where it is sporting a “B” grade. Within this, its return on equity is particularly noteworthy. It currently sports an RoE of 43.7% compared to an industry average 22.1%, showing that Texas Instruments does an excellent job putting investor money to work.
Last but not least, Nvidia is also sporting Zacks Rank #1 (Strong Buy). With a current year-to-date return of 19.9%, the company has seen exceptional growth throughout the first and into the second quarter.
Similar to Texas Instruments, the company is a strong growth stock, holding an “A” grade in our Growth category. Its ROE is even more impressive than TXN’s at 52.2%. Other factors to consider include Nvidia’s strong current cash flow and projected EPS growth of 66.7% and 43.9%, respectively.
Although Nvidia boasts amazing growth numbers, its one downfall is the Value category, where it is holding an “F” grade. This suggests that the stock is being traded at a heavy premium to its intrinsic value. It holds a P/E ratio more than twice the industry average and has a hefty price tag for such consistent growth.
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