Semtech (SMTC) Up 34.6% Since Last Earnings Report: Can It Continue?

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It has been about a month since the last earnings report for Semtech (SMTC). Shares have added about 34.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Semtech due for a pullback? Before we dive into how investors and analysts have reacted as of late, let’s take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Semtech Q4 Earnings & Revenues Surpass Estimates

Semtech Corporation’s fiscal fourth-quarter 2020 non-GAAP earnings of 40 cents per share surpassed the Zacks Consensus Estimate by 5 cents. However, the reported earnings decreased 2.4% sequentially and 27.3% year over year.

Non-GAAP revenues of $138 million decreased 2.1% sequentially and 13.8% from the prior-year quarter. The decrease was due to softer demand from industrial and consumer end markets, partially offset by stronger demand from enterprise computing and communications end markets.

Revenues surpassed the Zacks Consensus Estimate by 2.6% and came at the higher end of the guided range of $130-$140 million.

Its key growth drivers are product differentiation, operational flexibility, and specific focus on fast-growing segments and regions.

Let’s delve into the numbers in detail:

Revenues by End Market

Sales to the enterprise computing end market —which represented 32% of its total revenues — increased on a sequential basis, driven by a strong rebound in PON demand. Also, communications end market increased sequentially, representing 10% of the total revenues.

However, revenues from the industrial market decreased from the prior-year quarter and represented 31% of total net revenues.

Also, sales to the high-end consumer market represented 26% of total revenues and decreased sequentially due to lower smartphone demand. Roughly 18% of high-end consumer revenues were attributable to mobile devices and 8% to other consumer systems.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 43% to total sales. The reported figure increased 1% sequentially. The sequential increase was driven by stronger demand from data center and base station segments.

Revenues from Protection Product Group represented 27% of the total revenues. The figure was down 6% sequentially due to weak smartphone demand.

However, management expects prospects for protection platforms in mobile devices, displays and accessories to remain positive in the near term as 5G smartphones integrate higher performance interfaces and more advanced photography devices.

Revenues from Wireless and Sensing Product Group, which contributed 30% to total revenues, decreased 2% sequentially.

Bookings

Bookings, which accounted for roughly 37% of shipments, decreased on a sequential basis during the quarter. The book-to-bill ratio was above 1.

Margins and Net Income

Non-GAAP gross margin was 61.5%, down 10 basis points (bps) sequentially and 60 bps from the year-ago quarter.

Semtech’s adjusted selling, general and administrative expenses increased 4.6% year over year to $29.8 million. However, product development and engineering expenses decreased 1% from the year-ago quarter to $24.1 million.

As a result, its operating margin of 22.5% was down 150 bps sequentially and 640 bps year over year.

Balance Sheet & Cash Flow

Semtech ended the quarter with cash and cash equivalents of $293.3 million versus $283.1 million in the fiscal third quarter. Accounts receivables were $61.9 million, up from $61.4 million in the fiscal third quarter. Long-term debt was $194.7 million, up from $179.1 million in the fiscal third quarter.

During the quarter, cash flow from operations was $45.3 million, capital expenditure amounted to $2.6 million and free cash flow totaled $42.6 million.

During the quarter, the company repurchased 0.5 million shares for $27.6 million.

Guidance

For fiscal first-quarter 2021, management expects revenues in the range of $125-$135 million.

Non-GAAP gross profit margin is expected within 61-62%. Management projects SG&A expenses within $28-$29 million, and research and development costs in the range of $24-$25 million. Non-GAAP earnings per share are expected in the range of 30-36 cents.

How Have Estimates Been Moving Since Then?

It turns out, estimates review flatlined during the past month.

VGM Scores

Currently, Semtech has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren’t focused on one strategy, this score is the one you should be interested in.

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