Silicon Motion rises as Susquehanna upgrades, citing 'attractive risk-reward profile'

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Silicon Motion Technology (NASDAQ:SIMO) shares rose on Wednesday as investment firm Susquehanna upgraded the NAND flash supplier, noting the stock has an "attractive risk-reward profile" at these levels.

Analyst Mehdi Hosseini moved his rating on Silicon Motion Technology (SIMO) shares to positive from neutral, along with a $108 price target, noting that the MaxLinear (NASDAQ:MXL) acquisition is still pending and if it closes, expected by mid-2023, there is considerable upside.

Hosseini added that while smartphone and notebook shipments are expected to fall in 2023, the mix and average selling price should rise, and help Silicon Motion Technology (SIMO) generate "flattish" revenue next year. When combined with operating margin contraction that could lower earnings per share to $6.62, a $160M breakup fee, putting an 8 earnings multiple would equal a $57 stock. But if the deal closes, shares could be worth as much as $108.

"We have no insight into the China approval process, which is the lengthiest," Hosseini wrote of the pending deal. "But we argue that the shares now offer an attractive risk/reward profile, especially in an uncertain demand environment."

In August, MaxLinear (MXL) was asked by China's antitrust regulatory to refile for its planned $3.8B purchase of Silicon Motion (SIMO) under "normal procedure."

Silicon Motion Technology (SIMO) shares gained nearly 1% to $69.80 in premarket trading.

The MaxLinear (MXL)- Silicon Motion (SIMO) deal was announced in May and received U.S. antitrust approval for the transaction in late June as the waiting period under the Hart-Scott-Rodino Antitrust Act expired.

Separately in August, Silicon Motion (SIMO) shareholders approved the acquisition.

Analysts are mostly bullish on Silicon Motion Technology (SIMO). It has a STRONG BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates SIMO a HOLD.

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