Catalysts That Make Hittite Microwave Attractive (HITT)

Jun. 9.06 | About: Hittite Microwave (HITT)

Hittite Microwave Corporation (NASDAQ:HITT) engages in the design and development of analog and mixed-signal integrated circuits, modules, and subsystems used in radio frequency, microwave, and millimeter wave applications worldwide. (Y! Finance)

Catalysts that make HITT a buy:

* Demand for mobile communications services has grown rapidly and appears poised for continued growth over the foreseeable future. This growth in systems using RF, microwave and millimeter wave technologies has accelerated demand for the analog, digital and mixed-signal ICs, modules and subsystems that HITT provides. HITT has a solid background with 20 years in the business and has developed competitive advantages over this time period, enabling it to differentiate its products and offerings.

* HITT has generated historically high levels of profitability. Gross margins have trended upwards every year, rising from 55.4% in 2002 all the way to 68.1% for 2005 as the company has been able to improve efficiencies and lower manufacturing costs, as well as an improved product mix. Operating margins have followed, rising from 19.3% in 2002 to 37.6% for 2005, in spite of increased investment in R&D and additional expenses associated with being a public company.

* In addition, the company raised Q2 guidance in the Q1 earnings release, and the stock has fell back to its trend line since its large gap up from 32-35. The stock has basically trended back to its pre-earnings price due to the overall selling pressure the Nasdaq has experienced in the past few weeks.

* Four different analysts raised their numbers for 2006. Over the past 60 days 2006 estimates have increased 12% to 84 cents per share. The company has exceeded earnings estimates for the past two quarters by an average of 17%.

* Although a competitive market, HITT holds an advantage due to its broad product portfolio giving it the ability to offer products throughout the spectrum, while most of its competitors have more limited offerings. Most of its current competitors focus on one portion of the rather than offering products across all areas, or offer a single product over several spectrums rather than the wide range of products offered by HITT.

* Technically Speaking (Pls. view the graph below): HITT has been forming a base, and may have begun shaping its right side, as shown by the ADX which is hovering around 18. HITT's 15-day TRIX is slowly shaping upwards & i believe soon there will be a positive divergence between the 15 & 9 day TRIX levels. The MACD is where i'm a bit worried, the 26 day MACD shows a nice trend beginning towards the upside & meets 12 day MACD, which seem quite positive till today, as evident by the MACD histogram (in blue).

Overall I'm a lot more bullish on HITT than average due to 1) Solid demand for its products 2) Good competitive advantages & 3) Technicals finally look appealing to me. With EPS 07 around $1.44 impling the stock is trading around 23 times F/E 07 earnings. Given the average growth in excess of 30% YOY, I believe Wall Street will pay a multiple of 30x earnings for this high growth company ($1 billion market cap) which yields a price target of $43 a share.

Disclosure: Lastly I'd say just be carefull. I plan to take a position of 25% and keep scaling my buys because I believe the market isn't done going down just as yet.