By Kris Tuttle
We don’t focus much of our research horsepower on short ideas but often need some as a hedge in our portfolios. Fortunately we have been able to turn up some good ones in the past like Iron Mountain (IRM), Constant Contact (CTCT) and Symantec (SYMC).
Actel (ACTL) is a little semiconductor company (2008 sales estimated at $218M) which is in the programmable chip segment. (Similar companies are Altera (ALTR), Xilinx (XLNX), Atmel (ATML), Lattice Semiconductor (LSCC) and Quick Logic (QUIK)).
There’s nothing fundamentally wrong with Actel and it looks like a decent-enough little company. However this global semiconductor slowdown is not taking any prisoners and so far Actel estimates and the price of the stock suggest they will not be spared. The company lacks high growth and doesn’t have particularly high margins.
The crux of the current problem facing Actel is that on December 11, 2008 they pre-announced that results for the current quarter would be inline. Two weeks later, on December 24th, 2008, they announced the regrettable death of their CFO. (We’re not suggesting that the CFO tragedy has anything to do with the story here but we know we need to mention it since it will show up in any news searches on this name.)
Actel is not a well-followed stock but forward estimates for the company remain bullish and reflect revenue *growth* in the full year 2009 to $225M. This appears to be impossible given that forward estimates for every other company in and around Actel call for a revenue decline of 20%. A more realistic scenario would probably be for revenues in the $185M range and a small loss for the current year.
Industry experts might (might) suggest that Actel has some advantages in their ability to make smaller units and/or consume less power per unit. We can’t refute the claim and at least on the the surface the new "IGLOO" technology from Actel looks quite solid. However nothing in the product family supports a view that Actel revenues and margins next year won’t be substantially different than the competition.
From a stock supply/demand standpoint, there is little or no current short interest outstanding in the shares. Insiders have been selling fairly steadily but not in huge volumes. (31,000 shares sold in 12 transactions versus one 500 share purchase in the last six months.)
The company does have about $5/share in cash which places a solid floor under the stock but it's probably still meaningfully below current prices. Our estimate is that the stock should be trading in the $8-9 range versus the current $11-12. That potential doesn’t put it at the top of our list but in a market where shorts are needed, it seems to be a decent candidate.
Disclosure: We have a small short position in ACTL at the time of this writing.