Bull Of The Day: Integrated Device Technology

Jun.11.13 | About: Integrated Device (IDTI)

Integrated Device Technology (NASDAQ:IDTI) has put together a number of positive earnings surprises. The stock has risen to a Zacks Rank No. 1 (Strong Buy). It is our Bull of the Day.

Consolidating to Core Products

The company is selling off some old business lines, including the recent sale of PCI Express to PMC for $100 million in cash. That deal follows a March transaction with Atmel for its smart meter business. Some would say the shrinking down and getting to a laser focus on the core is simply the company cleaning itself up for an acquisition. I could not agree more, but I also like the business lines, wireless power, and the big move in estimates.

Company Description

Integrated Device Technology is a timing chip company that allows the processor and switches. Rapid IO switches are key to their communications product set, and China Mobile should be a huge customer in the coming year. RF, or radio frequency, is also another area of expertise as is the wireless power segment. So they have a lot of things going on in some interesting areas that are going to be seeing growth for some time.

Good Earnings History

Looking at the company's earnings history, I see a stock that has beaten the number five of the last six reports, with the exception being a time when the company met estimates. The most recent quarter was a loss of $0.02, but that was two cents better than the loss of four cents that analysts were expecting. I expect the company to swing back to profitability in the coming quarter.

All About Timing

While the chips are based on the idea of timing, the idea of being a Bull of the Day is all about timing as well. The Asian markets have been on fire throughout the first half of 2013. Despite a recent correction from the top, most signals point to continued strength from that geography. In following that idea, the major of chipsets are coming from Asian markets. So if those areas are doing well, it stands to reason that the businesses that are located there will benefit from that.

Sales Estimates Tick Higher

A key idea to aggressive growth investors looking at a chip company is revenue growth. Without it, a company has to trim expenses and R&D budgets to maintain profitability, and that sector has been historically bad at that. IDTI does have revenue growth, and more important is that the analysts who are closest to the story see the growth story getting better. Recently, the Zacks Consensus Estimate for revenue has ticked higher. The FY 2014 estimate was calling for $498 million, but that has bumped higher to $503 million. FY 2015 has also seen an increase from $534 million to $539 million.


The valuation picture for IDTI is a mixed picture. The trailing and forward P/E multiples show a significant premium to the industry average, while the more conservative measures show the company trading at a discount. The 35x forward P/E is nearly double the industry average of 19x, and the 60x trailing multiple is just under triple the industry average of 21x. That more conservative measure, price to book, shows the company trading at a discount with a 1.9x multiple vs. a 2.2x multiple.

The Chart

The chart shows a stock that has made a significant move over the past few months. The idea here is that this could be the precursor to an even more dramatic move higher as demand for electronics is soaring. With a decent valuation, more expected growth, and a company that could do well alone or as part of a bigger concern (via acquisition), IDTI is worth a deeper look.

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