Deutsche Bank initiated coverage on shares of Silicon Motion Technology Corp (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:
- 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.
- 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.
- 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.
- 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%.
- 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.
- 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.