Bull of the Day: Integrated Device Tech (IDTI)

Brian Bolan

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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