It has been about a month since the last earnings report for Semtech (SMTC - Free Report) . Shares have added about 1.4% in that time frame, underperforming the S&P 500.
Will the recent positive trend continue leading up to its next earnings release, or is Semtech 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 Beats Earnings & Revenue Estimates in Q4
Semtech Corporation reported strong fiscal fourth-quarter 2019 results, wherein earnings and revenues beat the respective Zacks Consensus Estimate.
Non-GAAP earnings of 55 cents per share beat the consensus mark by a penny. However, the reported earnings decreased 12.7% sequentially but increased 37.5% year over year.
Non-GAAP revenues of $160 million decreased 7.8% sequentially but increased 13.8% from the prior-year quarter. The year-over-year increase was driven by growth in IoT, data center and mobile markets. Revenues surpassed the Zacks Consensus Estimate by 0.12% and came in within the guided range of $155-$165 million.
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.
Let’s delve into the numbers in detail:
Revenues by End Market
Sales to the enterprise computing end market, which represented 33% of its total revenues, increased on a sequential basis.
Sales to the high-end consumer market represented 24% of the total revenues, decreasing sequentially. Roughly 16% of high-end consumer revenues were attributable to mobile devices and 8% to other consumer systems.
The industrial and communications end markets both decreased sequentially, representing 32% and 11% of the total revenues, respectively.
Revenues by Product Group
Signal Integrity Product Group revenues contributed 45% to total sales and increased 2% sequentially. Continued strength in data center demand, PON, base station and video markets contributed to the growth.
Protection Product Group represented 26% of the total revenues and was down 21% sequentially. This was due to year-end inventory reduction efforts, and lower global demand for smartphones and other consumer equipment.
Wireless and Sensing Product Group, which contributed 29% to the total revenues, was down 9% sequentially but up 22% year over year.
Bookings, which accounted for roughly 45% of the shipments, decreased on a sequential basis during the quarter. The book-to-bill ratio was below 1.
Margins and Net Income
Non-GAAP gross margin was 62.1%, up 40 basis points (bps) sequentially and 110 bps from the year-ago quarter.
Semtech’s adjusted operating expenses of $53.8 million increased 3.5% on a year-over-year basis. As a percentage of sales, selling, general and administrative expenses decreased, while product development and engineering expenses increased.
As a result, its operating margin of 28.9% was down 150 bps sequentially but up 440 bps year over year.
Balance Sheet & Cash Flow
Semtech ended the quarter with cash and cash equivalents of $312.1 million versus $312.2 million in the fiscal third quarter. Accounts receivables were $79.2 million, down from $83.8 million in the fiscal third quarter. Long-term debt was $192.8 million, down from $197.4 million in the fiscal third quarter.
During the quarter, cash flow from operations was $47.2 million, capital expenditure amounted to $4.1 million and free cash flow totaled $43.1 million.
For fiscal first-quarter 2020, management expects revenues in the range of $125-$135 million.
Non-GAAP gross profit margin is expected within 61.9-62.5%. Management projects SG&A expenses within $26.5-$27.5 million, and research and development expenses in the range of $24.5-$25.5 million. Non-GAAP earnings per share are expected in the range of 30-36 cents.
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 -55.71% due to these changes.
Currently, Semtech 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.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Semtech has a Zacks Rank #5 (Strong Sell). We expect a below average return from the stock in the next few months.