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Semtech (SMTC) Up 4.5% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Semtech (SMTC). Shares have added about 4.5% 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 the most recent earnings report in order to get a better handle on the important drivers.

Semtech Q1 Earnings and Revenues Surpass Estimates

Semtech’s fiscal first-quarter 2022 non-GAAP earnings of 53 cents per share beat the Zacks Consensus Estimate by 1.9%. The reported earnings increased 3.9% sequentially and 51.4% year over year.

Net sales of $170.4 million increased 3.5% sequentially and 28.4% from the prior-year quarter. It also surpassed the Zacks Consensus Estimate of $168 million.

The top-line growth was driven by strong momentum across all end-markets served. Further, strong demand in IoT, optical infrastructure and mobile segments drove the results.

Additionally, Semtech’s low power, high range (LoRa) business contributed well to its quarterly performance.

During the fiscal first quarter, shipments in Asia, North America and Europe represented 78%, 13% and 9% of net sales, respectively.

During the first quarter, the company released 11 new products and achieved 3,036 new design wins, up 38% year over year.

Revenues by End Market

Net revenues from the infrastructure market, which represented 36% of its total revenues, increased 1% on a sequential basis and 6% year over year.

Also, revenues from the industrial market increased 1% sequentially and 41% from the year-ago quarter. It represented 32% of total net revenues.

Also, net revenues from the high-end consumer market represented 32% of total revenues. Revenues increased 8% sequentially and 52% year over year.

Revenues by Product Group

Signal Integrity Product Group revenues contributed 39% to total revenues. The reported figure increased 7% sequentially. The increase was driven by strong demand across data center, passive optical networks and wireless base station businesses.

Revenues from its Protection Product Group represented 27% of the total revenues. The figure was down 5% sequentially but up 13% year over year. The decline was driven by supply constraints faced by some smartphone customers. However, demand for protection devices from the broad-based industrial market increased as automotive and IoT markets gained momentum.

Wireless and Sensing Product Group revenues, which contributed 34% to total revenues, increased 7% sequentially and 78% year over year. The increase was driven by record net sales of LoRa platform products.

Operating Results

Non-GAAP gross margin of 62% expanded 70 basis points (bps) year over year, reflecting a higher favorable product mix.

First-quarter adjusted selling, general and administrative expenses increased 9.5% year over year to $31.1 million. Also, product development and engineering expenses increased 33.1% from the year-ago quarter to $33 million.

Non-GAAP operating margin of 24.3% also expanded 310 bps year over year.

Balance Sheet and Cash Flow

Semtech ended the quarter with cash and cash equivalents of $258.2 million compared with $268.9 million in the previous quarter. Account receivables were $66.5 million, down from $70.4 million in the last quarter. Long-term debt was $175.3 million, down from $179.2 million in the previous quarter.

For the quarter, cash flow from operations was $32.6 million, net capital expenditure amounted to $5.8 million and free cash flow totaled $26.8 million.

During the quarter, the company repurchased 360.9 thousand shares for $25 million.

Guidance

For fiscal second-quarter 2022, management expects net sales in the range of $177-$187 million.

Non-GAAP gross margin is expected within 61.7-62.7%. Also, management projects SG&A expenses within $33-$34 million, and research and development costs in the range of $31-$32 million.

Moreover, management anticipates generating higher revenues from all product groups in the fiscal second quarter.

Non-GAAP earnings per share are expected in the range of 57-65 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 30.15% due to these changes.

VGM Scores

At this time, Semtech has an average Growth Score of C, though it is lagging a bit on the Momentum Score front with a D. Charting a somewhat similar path, the stock was allocated a grade of F on the value side, putting it in the fifth quintile 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.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Semtech has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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