MKM: Cypress Semiconductor Has Repositioned Itself For Market-Leading Growth
Cypress Semiconductor Corporation (NASDAQ: CY) provided an update on its Cypress 3.0 strategy at a Wednesday analyst day event. With a focus on the IoT and automotive markets, the company has raised its longer-term gross margin and operating margin targets, according to MKM Partners.
The Analyst
MKM Partners’ Ruben Roy maintained a Buy rating on Cypress Semiconductor and raised the price target from $16 to $18.
The Thesis
Cypress Semiconductor has repositioned its business to focus on the IoT and automotive markets, which it believes can grow at a CAGR of 12-14 percent and 8-12 percent, respectively, through 2023, Roy said in a Thursday note.
In the fourth quarter, these key markets combined accounted for 68 percent the company’s overall revenue, while legacy products represented only around 33 percent, the analyst said.
Cypress Semiconductor raised its gross margin target from 50 percent to more than 50 percent, Roy said. The company said that if legacy products were removed from the model, gross margins would already be at the 50-percent mark, he said.
The longer-term operating margin target has been raised from 20 percent to greater than 25 percent. This improvement is mainly on account of structural changes in the company's memory business, the analyst said.
Cypress Semiconductor provided a longer-term free cash flow margin target for the first time, projecting it at more than 20 percent of revenue, with $3 billion in FCF expected over the next five years, Roy said.
Cypress Semiconductor is participating in robust design activity across these markets and has differentiation that should support its growth expectations, according to MKM Partners.
Price Action
Cypress Semiconductor shares were down 0.26 percent at $15.12 at the time of publication Thursday.
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Photo courtesy of Cypress Semiconductor.
Latest Ratings for CY
Oct 2018 | Barclays | Maintains | Equal-Weight | Equal-Weight |
Sep 2018 | KeyBanc | Downgrades | Overweight | Sector Weight |
Sep 2018 | Morgan Stanley | Maintains | Underweight | Underweight |
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