Tessra Technologies' Steady Growth Indicates Potential For Benchmark Beating Returns

Jul.10.07 | About: Tessera Technologies, (TSRA)

A stock that is in both the Clear Mid Cap Growth portfolio, and Clear Mid Cap Growth Index licensed for the ETF (NYSEARCA:CSD), is the San Jose, California-based semiconductor equipment developer, Tessera Technologies Inc. (NASDAQ:TSRA).

Drawing its name from the Latin word for tile, TSRA specializes in miniaturization technologies for the electronics industry. TSRA's methodologies enable the production of semiconductor chips used in products such as digital cameras, personal computers, video game consoles and mobile phones.

Tessera has built a sound foundation on the production of chip components for the needs of semiconductor companies. In the early 1990s, representing the early years of TSRA's operation, one of the most pressing of these needs was the development of efficient silicon packaging comprising the physical interface between the silicon die and circuit board. The solution produced by TSRA, known as Chip Scale Packaging, is still in use today, offering an efficient means of creating packaging solutions on par with silicon chips for minuscule size, and maximal speed.

Growth in this sector also allowed for additional organic expansion opportunities, with the introduction of engineering and infrastructure services for semiconductor makers and assemblers, electronic manufacturing service companies and government agencies and contractors. The engineering division includes customized product and package design/simulation, as well as consulting services for the optimization of assembly lines. Infrastructure services provide complimentary support in cost analysis, in addition to the design and production of wafer optics for both the semiconductor and communications industries.

Performance results from the first fiscal quarter of 2007 show promising growth throughout these business lines with royalties, and license fees up 84% as a result of market share gains. This has contributed to a 156.32% growth in year over year revenue, and a 231.82% increase in net income over the same period. Extending the latter statistic over a five-year period yields a steady 76.96% overall growth.

Equally impressive are the profitability measures which have facilitated this growth, with TSRA's operating margins of 49.13% far above its 4.97% peer group average. The return on equity (ROE) figure is also exemplary at 27.66% relative to the industry average at 15.51%, thereby placing the firm among the top 10% of its peers for this statistic.

An initial valuation analysis via the price to earning (P/E) ratio of 28.52 relative to the 27.31 industry average, points to pricing on par with the firm peer group. Factoring in earnings growth however, through its low price to earnings to growth [PEG] ratio of 0.123 indicates unrealized value in the stock. Based on these and other factors, our multi-factor models calculate potential for benchmark beating returns.

Disclosure: Mr. Corn is CEO of Clear Indexes LLC and Clear Asset Management LLC. Tessera Technologies Inc. is a constituent in the Clear Mid Cap Growth Index licensed for the Claymore/Clear Mid Cap Growth ETF (MCG). It is also a holding in the actively managed Clear Mid Cap Growth portfolio.
Mr. Corn owns shares of the ETF:MCG, and shares of TSRA directly through his participation in the Clear Mid Cap Growth portfolio.

TSRA 1-yr chart:
TSRA 1-yr chart