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Xilinx (XLNX) Up 12.5% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Xilinx (XLNX - Free Report) . Shares have added about 12.5% in that time frame, outperforming the S&P 500.

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

Xilinx Reports Overwhelming Q3 Results

Xilinx delivered better-than-expected third-quarter fiscal 2019 results wherein both the top and the bottom line surpassed the Zacks Consensus Estimate and recorded a year-over-year improvement as well.

The company reported earnings of 92 cents per share, much higher than the Zacks Consensus Estimate of 85 cents and also the prior-year quarter’s figure of 76 cents.

Revenues surged 34% year over year to $800 million and outpaced the Zacks Consensus Estimate of $771 million too, driven by strength across Wireless Communications, Aerospace and Defense plus Test Measurement and Emulation markets.

Quarter in Detail

Product wise, Advanced product revenues soared 51% year over year, contributing 66% to total revenues. Revenues from core products (34% of total) increased 9% from the year-ago quarter.

The company is witnessing robust growth in 28-nanometer and 16-nanometer Zynq SoC products. Sales of Zynq products grew 80% from the year-earlier quarter, aided by 16-nanometer MPSoC products. Moreover, strength across applications and communications, automotive, particularly ADAS, as well as industrial end markets were key drivers.

On the basis of end markets, Communications revenues (35% of total revenues) grew 41% year over year. Growth in Wireless market, backed by early 5G production, pre-5G deployments and LTE upgrades, was a primary catalyst. Notably, 5G deployments in South Korea and a very early start of ramping up the 5G deployments in China drove results.

Broadcast, Consumer & Automotive revenues (15% of total revenues) increased 20% year over year, attributable to an uptick in Broadcast. Meanwhile, Automotive remained flat while Consumers declined slightly.

Industrial, Aerospace & Defense segment revenues (27% of total revenues) rose 17% on a year-over-year basis, boosted by better-than-expected growth in A&D. However, a tad weaker Industrial segment was an overhang.

Data Center and Test, Measurement & Emulation (TME) (21% of total) improved 14% from the year-ago period. Key design wins from hyperscalers globally for accelerating applications beyond FPGA as a Service (FaaS) bettered results. Moreover, with regard to FaaS, it had additional engagements beyond previously announced deployments with Amazon, Alibaba and Huawei.

Excluding cryptocurrency, Data Center growth nearly doubled year over year. Absence of cryptocurrency related demand was a dampener.

Geographically, the company registered year-over-year growth across all four regions. North America and Europe grew 24% each while Asia Pacific and Japan grew 47% and 26%, respectively.

The company posted non-GAAP operating income of $263 million, up 63% year over year. Operating margin expanded 590 bps to 32.9%.

Balance Sheet, Cash Flow & Shareholders’ Returns

Xilinx exited the reported quarter with cash, cash equivalents and short-term investments of approximately $3.47 billion compared with $3.38 billion in the previous quarter.

The company has total long-term debt (excluding current portion) of about $721.6 million, down from $1.201 billion reported in the preceding quarter.

Xilinx generated cash of $314 million from operations compared with $313 million in the earlier period.

The company returned $92 million, mostly by dividends. It repurchased shares worth $1 million.

Guidance

For fourth-quarter fiscal 2019, Xilinx projects revenues in the range of $815-$835 million.

The company expects strong growth across Communications, and Data Center and TME while particular strength will be witnessed in Wireless and TME. Meanwhile, Industrial and A&D plus Automotive, Broadcast and Consumer might decline.

Gross margin is anticipated to be around 68.5%. 5G deployment and a few other product mixes are a threat to gross margin. Operating expenses are predicted to be $305 million.

The company envisions modest revenue growth from Alveo this year and is likely to become more meaningful in the next fiscal year.
 

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 14.3% due to these changes.

VGM Scores

At this time, Xilinx has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Xilinx has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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