MagnaChip Semiconductor: Valuation Continues To Impress

| About: MagnaChip Semiconductor (MX)

MagnaChip Semiconductor Corp. (NYSE:MX) has posted an average earnings surprise of 25.2% over the trailing four quarters, most recently delivering a beat of 27.8% in the second quarter of 2012. Moreover, this Zacks #2 Rank (Buy) provider of analog and mixed signal semiconductor products has a forward price-to-earnings (P/E) multiple of just 7.5, which makes it attractive for value investors.

MagnaChip Tops Q2 Estimates

MagnaChip Semiconductor reported second quarter results on August 2, with earnings per share of 46 cents that surpassed the Zacks Consensus Estimate by a dime. Revenue remained flat from last year at $202.6 million.

MagnaChip provided an optimistic third quarter guidance. Revenue is expected to increase 7% - 11% to between $217.0 million and $225.0 million on a sequential basis. Gross margin is projected to increase 100 - 200 basis points to between 32.0% and 33.0% sequentially.

The company also announced an extension of the current share repurchase program through October 2013 (earlier scheduled to be terminated at the end of October 2012). MagnaChip Board of Directors also increased the total amount of common stock the company may purchase by another $25.0 million, with the maximum limit fixed at $60.0 million.

Earnings Estimates Moving Up

Earnings estimates for 2012 moved higher over the last 60 days. The Zacks Consensus Estimate jumped 7.8% to $1.80 per share, representing 11.4% year-over-year earnings growth. For 2013, the Zacks Consensus Estimate of $1.96 reflects 8.6% year-over-year earnings growth.

Valuation Continues to Impress

In addition to the low P/E, the stock looks attractive with respect to a price-sales (P/S) multiple of just 0.7. A P/E below 15.0 and a P/S ratio less than 1.0 generally suggests a value stock. Moreover, MagnaChip's PEG ratio of just 0.75 indicates that the stock is reasonably valued given the expected growth of 10.0%.

Historically, share prices have shown positive correlation to earnings growth. Therefore, the current estimate trends indicate that they are headed north.

Seoul, South Korea-based MagnaChip Semiconductor Corp. designs and manufactures analog and mixed-signal semiconductor products. Its customers include consumer electronics original equipment manufacturers (OEMs) such as LG Display, subsystem designers, contract manufacturers, and analog and mixed-signal semiconductor companies.

Most of MagnaChip's operating facilities are located in South Korea. The company primarily sells its products through a direct sales force and a network of agents and distributors all over Korea, Japan, Greater China and Europe. MagnaChip earned revenues of $772.8 million of which 71% was contributed by the direct sales force.

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Tagged: , Semiconductor - Specialized, Earnings, Korea
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