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Monolithic Power (MPWR) Hits 52-Week High on Solid Execution

Zacks Equity Research

Shares of Monolithic Power Systems Inc MPWR, popularly known as MPS, have rallied to a 52-week high of $111.55 and eventually closed at that price on Oct 10, up 2.7% from the previous session.

The momentum can be attributed to the company’s consistent execution and significant growth potential in the newer markets like Automotive, Industrial, Server and Communications.

In the second quarter of 2017, revenues jumped 19.3% year over year to $112.2 million, beating the Zacks Consensus Estimate of $111 million. Top-line growth benefited from strong sales in the server, high-end notebook, solid state drives (SSDs) and gaming.

Moreover, earnings of 68 cents per share surged almost 26% from the year-ago quarter. Notably, MPS has outperformed the Zacks Consensus Estimate for earnings in all of the trailing four quarters with a positive average of 1.99%.

Currently, MPS has a Zacks Rank #3 (Hold). Notably, the stock has a market capital of $4.50 billion.

Further, the stock has returned 36.1% year to date, substantially outperforming the 23.8% rally of the industry it belongs to.



Automotive, Purley Conversion: Key Catalysts

MPS is anticipated to benefit from improving penetration into new high-growth consumer markets —  Automotive, Industrial, Server and Communications.

Automotive presents significant growth opportunity for MPS. Management believes that total automotive SAM (serviceable available market) is worth almost $6 billion and growing dollar content is beneficial for the company. We also note that the company has a strong clientele in the automotive market, which includes Delphi Automotive Plc DLPH, Mitsubishi, Magna and others.

MPS is now focused on expanding beyond infotainment applications into body electronics, LED lighting applications and advanced driver assistance systems (ADAS). These are the key catalysts in the long term.

Moreover, we believe MPS is well positioned to benefit from the launch of Intel Corporation’s INTC Purley server platform. The shift from Intel’s Grantley to Purley boosts MPS’ dollar content. Management stated that dollar content for 2 CPU servers has increased from $35 (in Grantley) to $49 (in Parley). For 4 CPU configurations, this further improves from $53 to $85.

Management expects that the recently initiated conversion cycle (Grantley to Purley) and the higher dollar content will definitely boost top-line growth.

We believe the strong growth prospects at the Automotive and benefits from the Purley conversion will help MPS to achieve revenue growth target of 20% per year with expanding margins.

Estimate Revisions

The Zacks Consensus Estimate for fiscal 2017 has remained steady at $2.88 over the last 30 days. The estimate for fiscal 2018 has also been steady at $3.61 over the same time frame.

Stock to Consider

Analog Devices Inc ADI with a Zacks Rank #2 (Buy) is a stock worth considering in the same sector. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth for Analog Devices is currently pegged at 10.40%.

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