Nvidia Crushes Estimates, Raises Guidance - Why The Shares Still Have Upside

Aug.10.12 | About: Nvidia Corporation (NVDA)

Given the poor revenue results this quarter (only 40% of S&P 500 companies are beating on the top line this quarter, which is historically low), it is very satisfying when one of the stocks in your portfolio not only beats on the top and bottom lines, but raises guidance to boot. Nvidia (NASDAQ:NVDA) did just that with its second-quarter earnings report, which should ignite a rally in its still cheap shares.

Here are the key earnings highlights:

  • Earnings came in at 19 cents a share, 5 cents better than consensus estimates.
  • Revenue was $1.04 billion for the quarter, $30 million better than estimates.
  • More importantly, the company raised sales guidance for the third quarter to a range of $1.15 billion to $1.25 billion, higher than the $1.09 billion.
  • Tegra is driving impressive forward growth. The company has won orders in the quarter for this mobile processing product line from Google (NASDAQ:GOOG) and Microsoft (NASDAQ:MSFT) for their tablet devices. The company may have added orders for as many as 10 million units for Tegra, according to Craig Berger, an analyst at FBR Capital Markets.
  • Tegra sales hit a record, according to the company. The division that includes Tegra posted an increase in revenue of 36% to $179.7 million.

According to the business description on Yahoo Finance, "Nvidia provides graphics chips for use in smartphones, personal computers, tablets, and professional workstations markets worldwide."

Here are four reasons why Nvidia still has upside from $15 a share:

  1. The company has a robust balance sheet with around $3 billion in net cash on the books, which represents more than 30% of its market capitalization.
  2. The stock was upgraded to "buy" at UBS and Canaccord Genuity, and was initiated as an "outperform" by Northland Securities in June. Based on the guidance in recent earnings report, I would look for more upgrades in the coming weeks.
  3. The stock is still selling at near the bottom of its five-year valuation range based on P/E, P/S, P/CF, and P/B, despite its recent rise.
  4. Nvidia's technicals are positive. The stock recently bounced off long-term technical support at $13 and just crossed its 200-day moving average (see chart below).

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Disclosure: I am long MSFT, NVDA.