Semtech keeps Buy rating with Roth Capital

Semiconductor company Semtech (Semtech Stock Quote, Charts, News, Analysts, Financials NASDAQ:SMTC) kept a “Buy” rating with Roth Capital Partners, where analyst Scott W. Searle reviewed the company’s just-released quarterly numbers in a client update on Wednesday.

Semtech, a semiconductor, IoT systems and Cloud connectivity service provider, announced its first quarter fiscal 2024 results for the period ended April 30. The company delivered net sales up 17 per cent year-over-year and up 41 per cent sequentially to $236.5 million, which was above the midpoint of management’s previous guidance of $230-$240 million. (All figures in US dollars.)

Gross margins were 48.5 per cent and EPS was $0.02 per share.

President and CEO Mohan Maheswaran said the company is seeing signs of stabilization in the industry.

“As we continue to navigate this challenging macro-economic environment, we are taking steps to improve our operational efficiency and financial performance while focusing on executing our plans. With an expanded highly differentiated IoT portfolio, combined with our best-in-class High Performance Analog portfolio, we are well positioned to emerge stronger from this current cycle,” he said in a press release.

Looking over the results, Searle said the EPS of $0.02 was a beat of the analyst consensus estimate at negative $0.08 per share. He said core Semtech business and Wireless were in-line with previous revenue guidance at $100 million and $135 million, respectively, while its Signal Integrity Group’s sales dropped 48 per cent year-over-year to $41.6 million. Both Data Center and PON and Wireless segments were also down, as was Advanced Protection and Sensing, which fell 49 per cent to $36.1 million. IoT systems and services was down 29 per cent.

Searle noted that management has guided for just a one per cent improvement in revenue for the fiscal second quarter to $233-$243 million, reflecting inventory headwinds for the company, although the analyst said business directionality is improving.

“While modest, SMTC is guiding to sequential improvement despite ongoing elevated inventory levels. More importantly, SMTC has renegotiated debt covenants with modest interest hikes/penalties, providing flexibility into FY25. While we are adjusting our Street-high estimates lower, we expect the Street to move higher. With normalized sales of $1.2B and EPS power of $3.00+, SMTC remains overly discounted (10x CY24 EPS), in our opinion,” said Searle.

For the full fiscal 2024, Searle is now forecasting $1,020.7 million in revenue and $0.82 per share in earnings.

With his “Buy” rating, Searle maintained a 12-month target of $54.00, which at press time represented a projected return of 141 per cent.