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M/A-Com (MTSI) Up 15.2% 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 15.2% 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 catalysts.

MACOM Reports In-Line Q1 Earnings, Lags on Revenues

MACOM Technology Solutions Holdings, Inc. delivered fiscal first-quarter 2019 non-GAAP earnings of 20 cents per share, in line with the Zacks Consensus Estimate. The figure increased 25% on a sequential basis but declined drastically from the year-ago quarter.

The sequential increase in earnings was driven by prudent cost management.

Adjusted revenues increased 15.1% year over year but were flat on a sequential basis at $150.7 million. The figure missed the Zacks Consensus Estimate of $154 million and came in at the lower end of the guided range.

Management said that the results were impacted by trade tensions and recent geopolitical events. Also, orders from cloud customers slowed in the quarter, thereby impacting results.

In addition, the industrial market witnessed sluggishness due to macro slowdown. However, management expects end-market demand to be healthy for 2019, with 5G in particular expected to drive a rebound in the near future.

Operating Details

In fiscal first-quarter 2019, non-GAAP gross margin came in at 56.3%, expanding 260 basis points (bps) on a year-over-year basis and 150 bps sequentially.

Non-GAAP operating expenses, as a percentage of revenues, came in at 41.7%, which contracted 180 bps from the prior-year quarter and 70 bps from fiscal fourth-quarter 2018.

Adjusted operating margin came in at 14.5%, which expanded 420 bps from the prior-year quarter and 220 bps from the fiscal fourth quarter.

Adjusted EBITDA was $29.5 million, up from $20.9million in the year-ago quarter. However, the figure was up from $26.1 million in the fiscal fourth quarter.

Balance Sheet & Cash Flow

At the end of fiscal first quarter, cash equivalents and short-term investments were $185.8 million compared with $192.9 million at the end of the fiscal fourth quarter. Inventories were $120.9 million, down from $122.8 million a year ago.

Long-term debt obligations, excluding current portion, were $659.3 million in the fiscal first quarter.

Guidance

For fiscal second-quarter 2019, MACOM expects adjusted revenues between $134 million and $142 million. 

The company’s earnings are anticipated in the range of 4-12 cents per share. 

Further, non-GAAP gross margin is anticipated in the range of 55-57%.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -134.29% due to these changes.

VGM Scores

At this time, M/A-Com 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 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.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise M/A-Com has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.




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