Today - Friday, May 22, 2015
- As part of a broader chip stock coverage launch, Mizuho's Vijay Rakesh has assigned Buy ratings to Micron (MU +2.2%), Avago (AVGO +1.8%), and Synaptics (SYNA +2.6%). His targets are respectively $39, $150, and $115.
- Like other bulls, Rakesh sees Micron's PC DRAM sales (recently under pressure) improving in 2H15, aided by the launch of Windows 10 and Intel's 14nm Skylake CPU platform. He also downplays concerns about Micron's 20nm DRAM transition, thinks tri-level cell (TLC) and 3D NAND ramps will drive NAND gross margin improvement, and likes the hiring of Ernie Maddock as CFO.
- Rakesh forecasts Avago will continue benefiting from strong FBAR filter sales (boosted by 4G phone growth), growing smartphone dollar content, and the Chinese 4G ramp (aided by recent carrier tariff cuts). "AVGO is completely booked on its FBAR filter capacity through 2015 and the ramp of its industry leading 8-inch FBAR wafer capacity will likely lead to significant operational efficiencies versus its peers"
- He also notes Cisco is seeing strong sales for its ASR 9000 edge router line, which Avago has exposure to, and expects the Emulex deal to boost margins and EPS.
- TDDI (integrated touch/display driver) ICs, fingerprint sensor sales, and Chinese 4G demand are expected to act as tailwinds for Synaptics. Rakesh forecasts the company will produce FY16 (ends June '16) free cash flow of $304M, and thinks this could pave the way for buybacks.
- Synaptics has made fresh highs, and Avago is within $5 of a high of $136.28. Micron remains 25% below a high of $36.59.
- Shopify (Pending:SHOP) is now up 76% from its $17 IPO price, and 7% above a post-IPO opening trade of $28.00. The Canadian e-commerce software/payment service provider's valuation is up to $2.2B, or a steep 21x 2014 sales.
- SA author West Coast Growth Picks was bullish going into the IPO, noting Shopify has nearly doubled its merchant base each of the last 3 years and still gets 84% of its revenue from the U.S., U.K., and Canada (leaving plenty of room for international growth)
- Lior Ronen has been more cautious on account of Shopify's valuation, arguing SMB Web services provider Wix (WIX +0.2%) is a better deal given its far lower P/S multiple. Though not a direct Shopify rival, Ronen sees Wix benefiting from the launch of e-commerce services aimed at getting smaller merchants to upgrade to premium subscriptions.
- Prior Shopify coverage
- Update: Don Dion, who recommended buying into the IPO, is now closing out his position.
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