Morgan Stanley semiconductor analyst Mark Lipacis Monday morning raised his rating on the chip sector to Attractive from In-Line, and shifting his recommendations on a variety of semi names. Note that while he is more bullish overall, he actually downgraded more stocks than he upgraded, and in particular is cautious on telecom-related names.
Lipacis notes that the SOX index is up 41% off the November 2008 bottom, with a 14% gain year to date. But he contends we are “in the early innings of the cycle,” with 25%-40% upside remaining in hits Overweight rated pick in the coming 6-12 months.
Lipacis observes in a research note that the semiconductor supply chain cut inventories by 21%-24% on average over the past 2-to-4 quarters, which now stand at or below normal levels in most places. He asserts that the destocking will translate to upward revisions to EPS estimates. On average, he says, his 2010 estimates are 25% above the Street consensus.
He also notes that the chip industries have sharply cut costs, providing substantial margin leverage. He sees industry gross margins increasing by 500 basis points over 4-to-5 quarters as orders stabilize.
I would note that while he upgraded a number of stocks this morning, Lipacis also downgraded a number of other stocks, and in particular is cautious on telecom infrastructure related stocks,
- Broadcom (BRCM) to Overweight from Equal Weight.
- Marvell (NASDAQ:MRVL) to Overweight from Equal Weight.
- Micron (NASDAQ:MU) to Overweight from Equal Weight.
- MEMC Electronic Materials (WFR) To Equal Weight from Underweight.
- Altera (NASDAQ:ALTR) to Underweight from Equal Weight.
- Applied Micro Circuit (NASDAQ:AMCC) To Underweight from Equal Weight.
- Atheros (NASDAQ:ATHR) to Equal Weight from Overweight.
- Linear Technology (NASDAQ:LLTC) to Equal Weight from Overweight.
- PMC-Sierra (NASDAQ:PMCS) to Equal Weight from Overweight.
- Xilinx (NASDAQ:XLNX) to Underweight from Equal Weight.