Bull of the Day: Integrated Device Tech (IDTI) - Bull of the Day
June 11 2013 - 3:25AM
Zacks
Integrated Device Technology (IDTI) Has put together a
number of positive earnings surprises and that stock has risen to a
Zacks Rank #1 (Strong Buy). It is the Bull of the Day.
Consolidating To Core Products
The company is selling off some old business lines, including
the recent sale of PCI Express to PMC for $100M in cash. That deal
follows a March transaction with Atmel for smart meter business.
Some would say the shrinking down and getting to a laser focus on
the core is simply the company cleaning itself up for an
acquisition. I could not agree more, but I also like the business
lines, wireless power and the big move in estimates.
Company Description
Integrated Device Technology is a timing chip company that
allows the processor and switches. Rapid IO switches are key to
their communications product set and sees China Mobile as being a
huge customer in the coming year. RF or radio frequency is also
another area of expertise as is the wireless power segment. So they
have a lot of things going on in some interesting areas that are
going to be seeing growth for some time.
Good Earnings History
Looking to the earnings history, I see a stock that has beaten
the number 5 of the last 6 reports, with the exception being a time
when the company met estimates. The most recent quarter was a loss
of $0.02, but that was two cents better than the loss of four cents
that analysts were expecting. I expect the company to swing back to
profitability in the coming quarter.
All About Timing
While the chips are based on the idea of timing, the idea of
being a Bull of the Day is all about timing too. The Asian markets
have been on fire throughout the first half of 2013 and despite a
recent correction from the top, most signals point to continued
strength from that geography. In following that idea, the major of
chipsets are coming from Asian markets, so if those areas are doing
well, it stands to reason that the businesses that are located
there will do benefit from that.
Sales Estimates Tick Higher
A key idea to aggressive growth investors looking at a chip
company is revenue growth. Without it, a company has to trim
expenses and R&D budgets to maintain profitability and that
sector has been historically bad at that. IDTI does have revenue
growth and more importantly is that the analysts that are closest
to the story see the growth story getting better. Recently the
Zacks Consensus Estimate for revenue has ticked higher. The FY2014
estimate was calling for $498M, but that has bumped higher to
$503M. FY2015 has also seen an increase, from $534M to $539M.
Valuation
The valuation picture for IDTI is a mixed picture. The trailing
and forward PE multiple show a significant premium tot he industry
average, while the more conservative measure show the company
trading at a discount. The 35x forward PE is nearly double the
industry average of 19x, and the 60x trailing multiple is just
under triple the industry average of 21x. That more conservative
measure, price to book, shows the company trading at a discount,
with a 1.9x multiple versus a 2.2x multiple.
The Chart
The chart shows a stock that has made a significant move over
the past few months. The idea here is that this could be the
precursor to an even more dramatic move higher as demand for
electronics is soaring. With a decent valuation, more expected
growth and a company that could do well alone or as part of a
bigger concern (via acquisition), IDTI is worth a deeper look.
Brian Bolan is a Stock Strategist for Zacks.com. He is the
Editor in charge of the Zacks Home Run Investor service, a Buy and
Hold service where he recommends the stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader a trading
service that focuses on small cap stocks and also carries a risk
limiting strategy. Subscribers get daily emails along with buy, and
sell alerts.
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