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Elizabeth Pate of FBR Research wrote a note to clients on Microsemi (NASDAQ:MSCC) in her latest overview of the semiconductor components sector. Excerpts follow:

Microsemi: Outperform, $34 Price Target

4Q earnings preview:
We believe Microsemi's calendar 4Q business is tracking in line with expectations for revenues to grow 2%-4% sequentially and gross margins to rise slightly... SemiCap remains weak, while U.S. defense, WiFi, and CCFL inverters remain robust. We are forecasting 4Q revenues and EPS of $124 million and $0.30, respectively, in line with consensus estimates.

1Q guidance expectations:
We think management could again guide to calendar 1Q revenue growth of 2% to 4% QOQ, driven by strong U.S. military demand and some share gains in CCFL inverters. Gross margins should improve slightly, given more robust utilizations. Currently, Microsemi's 1Q consensus revenue estimate reflects 3% sequential growth for 4Q and 1Q, suggesting that near-term consensus estimates are achievable. We currently forecast 1Q revenues and EPS of $127.8 million (up 3% QOQ) and $0.32, respectively, in line with the consensus estimate.

Microsemi investment thesis:
We like shares of MSCC at current levels and rate the stock an Outperform with a $34 target. For long-term investors, we think MSCC qualifies as a core chip holding, given the company's many attractive elements, including its robust 30% operating margins, its sole-source supplier status into many booming end markets where growth seems likely to continue for several years or more, its ability to raise prices on certain products, and management's execution track record. We believe this business is defensible and sustainable and that MSCC is one of those rare chip stocks that one can invest in comfortably for multiyear periods.

Microsemi valuation methodology:
MSCC's current valuation is reasonable but not cheap relative to its historical trading range. Our $34 price target is based on a 23x multiple of our forward EPS estimate (2H08/1H09). Historically, MSCC has traded within a range of 10x to 35x its forward-12-month EPS estimate.

Source: Earnings Preview: Microsemi