It has been about a month since the last earnings report for Semtech (SMTC). Shares have lost about 0.7% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Semtech due for a breakout? 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 & Revenues Surpass Estimates
Semtech Corporation’s fiscal first-quarter 2021 non-GAAP earnings of 35 cents per share surpassed the Zacks Consensus Estimate by 3 cents. The reported earnings decreased 12.5% sequentially but increased 2.9% year over year.
Non-GAAP revenues of $132.7 million decreased 3.8% sequentially but increased 1% from the prior-year quarter. Stronger demand from the infrastructure end market was offset by softer demand, and some temporary supply constraints in high-end consumer and industrial end markets.
Revenues surpassed the Zacks Consensus Estimate by 3.1%.
Its key growth drivers are product differentiation, operational flexibility, and specific focus on fast-growing segments and regions.
Management remains optimistic about the LoRa business amid the COVID-19 pandemic. As LoRa is ideally suited for applications such as contact tracing, distance tracking, hygiene and health monitoring, as well as occupancy management, the company expects to see further growth in the LoRa business.
Let’s delve into the numbers in detail:
Revenues by End Market
Sales to the infrastructure end market (including enterprise computing and communications end markets) — which represented 43% of its total revenues — increased 1% on a sequential basis and 24% year over year, driven by a strong rebound in PON demand.
However, revenues from the industrial market decreased 9% sequentially and represented 30% of total net revenues.
Also, sales to the high-end consumer market represented 27% of total revenues and decreased 5% sequentially. Roughly 16% of high-end consumer revenues were attributed to mobile devices and 11% to other consumer systems.
Revenues by Product Group
Signal Integrity Product Group revenues contributed 45% to total sales. The reported figure increased 2% sequentially and 19% from the prior year. The increase was driven by persistently strong hyperscale data center customer addition, and solid demand for 10 gig PON and 5G PMD products.
Revenues from Protection Product Group represented 30% of the total revenues. The figure was up 5% sequentially.
Management expects encouraging prospects for protection platforms in mobile devices, displays and accessories 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 25% to total revenues, decreased 20% sequentially. The decrease was due to several regional shutdowns associated with COVID-19, which impacted both demand and supply.
Net bookings grew 22% sequentially on the back of strength in LoRa-enabled, 100G data center CDRs and broad-based Protection devices.
The book-to-bill ratio was above 1.
Margins and Net Income
Non-GAAP gross margin was 61.3%, down 20 basis points (bps) sequentially and 90 bps from the year-ago quarter. The decrease was due to lower absorption associated with the shutdowns.
Semtech’s adjusted selling, general and administrative expenses decreased 1.1% year over year to $28.4 million. However, product development and engineering expenses increased 1.8% from the year-ago quarter to $24.8 million.
As a result, its operating margin of 21.2% was down 130 bps sequentially and 60 bps year over year.
Balance Sheet & Cash Flow
Semtech ended the quarter with cash and cash equivalents of $268.9 million versus $293.3 million in the fiscal fourth quarter. Accounts receivables were $49.5 million, down from $61.9 million in the fiscal fourth quarter. Long-term debt was $190.8 million, down from $194.7 million in the fiscal fourth quarter.
During the quarter, cash flow from operations was $26.1 million, capital expenditure amounted to $7.7 million and free cash flow totaled $18.4 million.
During the quarter, the company repurchased 855,000 shares for $30 million.
For fiscal second-quarter 2021, management expects revenues in the range of $138-$146 million.
Non-GAAP gross profit margin is expected within 61.2-62%. Management projects SG&A expenses within $28.5-$29.5 million, and research and development costs in the range of $24.5-$25.5 million. Non-GAAP earnings per share are expected in the range of 40-44 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 350% due to these changes.
At this time, Semtech has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of F. If you aren't focused on one strategy, this score is the one you should be interested in.
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 #1 (Strong Buy). We expect an above average return from the stock in the next few months.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Semtech Corporation (SMTC) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research