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Why Is M/A-Com (MTSI) Up 15.7% Since Last Earnings Report?

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Zacks Equity Research
·4 min read
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A month has gone by since the last earnings report for M/A-Com (MTSI). Shares have added about 15.7% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is M/A-Com due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

MACOM's Q4 Earnings Beat, Revenues Up Y/Y

MACOM Technology Solutions Holdings reported fourth-quarter fiscal 2020 non-GAAP earnings of 40 cents per share, beating the Zacks Consensus Estimate by 5.3%. Further, the bottom line improved by 21.2% sequentially. Also, the figure jumped significantly from a penny in the year-ago quarter.

Revenues of $147.2 million too surpassed the Zacks Consensus Estimate of $146 million. Moreover, the top line rose7.3% sequentially and 31.2%from the year-ago quarter.

The company’s solid momentum across data center market drove the top line during the reported quarter.

The company expects strong 5G network deployments and a growing data center traffic to continue driving its top line in the fiscal first quarter.

End-Market in Detail

Telecom Market: The company generated revenues of $55.4 million (38% of total revenues) from this market, down 2% sequentially.

Nevertheless, the company witnessed solid 5G demand during the fiscal fourth quarter which remained a tailwind.

Data Center Market: This market generated revenues worth $43.9 million (30% of total revenues), which surged 35% from the prior quarter. Strong cloud services demand benefited both domestic and international deployments of the company during the reported quarter. Moreover, its high-performance 100G analog product lines remained key positive.

Industrial &Defense Market: MACOM generated revenues of $47.9 million (32% of total revenues), which was flat on a sequential basis.

Operating Details

In third-quarter fiscal 2020, non-GAAP gross margin was 56.4%, which expanded 340 basis points (bps) year over year.

In the reported quarter, non-GAAP operating expenses were $48.9 million, which declined 4.3% year over year. As a percentage of revenues, the figure contracted significantly from 45.5% in the prior-year quarter to 33.2%.

Consequently, the company’s non-GAAP operating margin was 23.2%, which significantly expanded from 7.6% in the prior-year quarter.

Balance Sheet & Cash Flow

As of Oct 2, 2020, cash equivalents and short-term investments were $333.1 million, up from $265.1million as of Jul 3, 2020. Inventories were $91.6 million, down from $95.6million in the last reported quarter.

Long-term debt obligations excluding current portion were $652.2 million in the fiscal fourth quarter compared with $652.9million in the previous quarter.

Cash generated from operations was $74.4 million, up from $34.1 million in the last quarter.

Further, the company’s free cash flow in the reported quarter was $69.5 million compared with $30.4 million in the prior quarter.

Guidance

For first-quarter fiscal 2021, MACOM expects revenues between $146 million and $150 million.

Further, the company’s adjusted earnings per share are anticipated in the range of 41-45 cents.
Moreover, non-GAAP gross margin is anticipated in the range of 56-58%.

 

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 25.72% due to these changes.

VGM Scores

Currently, M/A-Com has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. 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 C. 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 M/A-Com has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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