New Analyst Coverage Could Propel This Cash-Rich Chip Stock

| About: Silicon Motion (SIMO)

Deutsche Bank initiated coverage on shares of Silicon Motion Technology Corp (NASDAQ:SIMO) and issued a buy rating on the stock. The firm expects SIMO to deliver strong growth thanks to growing sales of 4G chips, especially to Samsung. I was not familiar with Silicon Motion before coming across this upgrade. However, after research, the stock appears cheap and has strong growth prospects as well.

"Silicon Motion Technology Corporation is a fabless semiconductor company that designs, develops, and supplies a portfolio of multimedia data processing, storage, and transfer solutions primarily for consumer electronics applications." (Business description from Yahoo Finance)

6 reasons SIMO has significant upside from $16 a share:

  1. Deutsche Bank is not the only analyst firm that likes the stock. The five analysts that cover the stock have a median price target of $28 a share on SIMO. Targets range from $23 to $35 a share.
  2. Earnings are on a solid uptrend. Silicon Motion made a $1.37 a share in FY2011 and is on track to make $1.79 a share in FY2012. Analysts have it making over $2 a share in FY2013.
  3. The company has over $100mm in net cash on its balance sheet with equates to more than 20% of its market capitalization at the current stock price.
  4. The company has beat earnings estimates for six straight quarters. The average beat over consensus estimates over that time period has been north of 30%.
  5. The stock sports a minuscule five year projected PEG (.45) and analysts expect over 25% revenue growth in FY2012 and around a 14% sales increase in FY2013.
  6. The stock is cheap at approximately 8 times forward earnings, a substantial discount to its historical average (15.0). The company also quintupled operating cash flow from FY2009 to FY2011.

Disclosure: I have no positions in any stocks mentioned, but may initiate a long position in SIMO over the next 72 hours.