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Apple vendor OVTI lowers guidance; looks oversold

|Includes: OmniVision Technologies, Inc. (OVTI)

Tim Biggam, TradingBlock  (August 30, 2011, 12:05pm CDT)

Symbol Analyst Target Price Target Date
UVTI 20.00 January 20, 2012

OmniVision Technologies (ticker: OVTI) designs, develops and markets semiconductor image-sensor devices. The company's main products, which it refers to as “CameraChip” image sensors, capture an image electronically and are used in a number of consumer and commercial mass-market applications.

OVTI plunged nearly 50% last week on lowered guidance, leading to enhanced speculation regarding the potential of future order loss from its largest customer, Apple. While OmniVision will no longer be the sole supplier, the share prices, trading below an 8 P/E on a forward basis, reflect an almost complete AAPL business loss. Most analysts look for OVTI to still remain as one of the primary suppliers to Apple, with earnings estimates for 2012 now looking anywhere from $2.00 to $2.45 per share.

OVTI has a book value of $13.67 per share, and with nearly $8.50 in cash per share, OVTI shares are trading at under a 5 P/E ex-cash, again highlighting the comparative cheap valuations now being given to OVTI.

Even assuming the low end of 2.00 per share, and a forward multiple of 10 (well below the historic multiple in the high teens), gives a price target of $20 by January 20, 2012.   

Play of the Day

Based on OmniVision Technologies' (ticker: OVTI) current market price of $18.41 and using a target price of $20.00, a target date of January 20, 2012 and $1,000 of investment capital, below are three options strategies (ranked by potential profit) and a comparative stock trade to consider should the price target be achieved at the target date.

Click on the strategy name below to access trade details using TradeBuilder on Powered by TradingBlock's TradeBuilder.

Strategy (click for details) % Return at Target Probability of breaking
even or better
Buy Jan Call Butterfly +215% 60%
Buy Jan Put Butterfly +138% 56%
Buy Jan Call Spread +64% 59%
Buy Stock +9% 61%

* Subject to change due to changing market conditions.

DISCLAIMER: This content is provided for educational and informational purposes only. Evaluate any strategy prior to use to understand risk and suitability. TradingBlock does not endorse or warrant any Market Analyst content, service or product. Use this content at your own risk without guarantee or warranty of any kind from TradingBlock. Tim Biggam is a TradingBlock registered representative. He is not compensated by TradingBlock for any market research or analysis services.