Following a new financing announcement, Roth MKM analyst Scott W. Searle thinks there is money to be made on Semtech (Semtech Stock Quote, Chart, News, Analysts, Financials Nasdaq:SMTC)
On October 20, SMTC announced a placement of $250-million in 4.00% convertible senior notes due 2028, resulting in net proceeds to the company of $242.5-million.
“SMTC completed a $250 million private placement of convertible senior notes,” the analyst wrote. “While the financing caught investors by surprise, the outcome is lower interest costs and flexibility on debt covenants, which we believe becomes a non-factor going forward. Concurrent with the financing, the company reiterated its Oct guidance which we believe reflects a 1. semi bottoming (Core-Semtech) with expected seq improvements and 2. success of continued cost-cutting actions. We are adjusting our model for dilution in FY26/CY25 and believe the stock remains both misunderstood and oversold.”
In a research update to clients October 23, Searle maintained his “Buy” rating and one-year price target of $46.00 on SMTC.
The analyst thinks the company will post EPS of $0.20 on revenue of $898.1-million in fiscal 2024. He expects those numbers will improve to EPS of $1.55 on a topline of $970.0-million in fiscal 2025.
The analyst reaffirmed that he thinks SMTC stock is overly discounted currently.
“Yes, management credibility struggles under these circumstances and near-term actions,” he said. “However, we emphasize that new CEO Paul Pickle assumed the role on June 30th and has undertaken massive cost cutting actions while integrating and rationalizing the product portfolio. We expect this to bear fruit and investor approval as we enter 2024. We continue to empathize that SMTC appears to be overly discounted at <10x CY25 EPS versus the comp group at 20x+.”
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