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OmniVision Technologies (OVTI) recently delivered its third straight positive earnings surprise as it continues to benefit from growing demand for smartphones. Following the most recent beat, management provided guidance above consensus, prompting analysts to raise their estimates significantly higher. This sent the stock to a Zacks Rank No. 1 (Strong Buy).

OmniVision Technologies makes advanced digital imaging technologies for consumer and commercial applications including mobile phones, tablets, notebooks and webcams, entertainment devices, security and surveillance systems, digital still and video cameras, automotive and medical imaging systems. The company is well-positioned to benefit from growing global demand for smartphones, particularly in the emerging markets. It is headquartered in Santa Clara, Calif., and has a market cap of $1.0 billion.

Fourth-Quarter Results

OmniVision reported its fiscal 2013 fourth-quarter results on May 30. The company delivered earnings per share of 17 cents, beating the Zacks Consensus Estimate of 9 cents. It was the company's third consecutive positive earnings surprise.

Revenues surged 54% to $336.2 million, thanks in large part to huge smartphone growth in China. Meanwhile, the company was able to leverage its fixed expenses. Total operating expenses as a percentage of revenues, for instance, declined 700 basis points to 13.9%.

Estimates Rising

Following strong fourth-quarter 2013 results, management provided first-quarter 2014 guidance well above consensus, prompting analysts to revise their estimates significantly higher for both 2014 and 2015. This drove the stock to a Zacks Rank No. 1 (Strong Buy). The Zacks Consensus Estimate for 2014 is now $1.29, up from $1.15 before the Q4 report. The 2015 consensus has risen from $1.06 to $1.27 over the same period.

Reasonable Valuation

The valuation picture looks reasonable for OmniVision. Shares currently trade at 15x 12-month forward earnings, a slight discount to its historical median of 16x. The stock is also trading at just 1.3x tangible book value, well below its historical median of 2.0x. OmniVision also has a solid balance sheet. The company had nearly $6 per share in cash and investments excluding debt as of April 30, 2013.

The Bottom Line

With strong industry tailwinds, rising earnings estimates and reasonable valuation, OmniVision Technologies has attractive upside potential.

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Source: Bull Of The Day: OmniVision Technologies