Why Is Semtech (SMTC) Up 7% Since Last Earnings Report?
A month has gone by since the last earnings report for Semtech (SMTC). Shares have added about 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 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 its most recent earnings report in order to get a better handle on the important catalysts.
Semtech Q1 Earnings Beat Estimates
Semtech Corporation first-quarter fiscal 2024 non-GAAP earnings of 2 cents per share compares favorably with the Zacks Consensus Estimate of a loss of 7 cents per share. However, the reported earnings decreased by 97.5% year over year.
Net sales of $236.54 million outpaced the Zacks Consensus Estimate of $234 million. The same increased by 17% from the prior-year quarter’s level.
Top-line growth was driven by the strength of the company’s IoT System. Also, the growing momentum in the industrial market contributed well.
However, weakening momentum across infrastructure and consumer end markets and softness in Signal Integrity and Advanced Protection and Sensing product lines were concerns.
Revenues by End Market
Sales from the infrastructure market were $39 million (16% of net sales), which exhibited a decline of 49% year over year.
Sales from the industrial market were $175.9 million (75% of net sales), up 125% from the prior-year period’s level.
Sales from the high-end consumer market were $21.6 million (9% of net sales), declining 55% year over year.
Revenues by Product Lines
Signal Integrity (18% of net sales) sales were $41.6 million in the reported quarter, down 47.5% year over year.
Advanced Sensing and Protection (15% of net sales) sales were $36.06 million, down 50.2% from the prior-year quarter.
IoT System (57% of net sales) sales were $134.6 million, increasing 166.9% on a year-over-year basis.
IoT Connected Services (10% of net sales) sales were $24.3 million in the reported quarter.
Operating Results
Non-GAAP gross margin of 48.5% contracted from 64.8% reported in the year-ago quarter.
Adjusted selling, general and administrative expenses for the fiscal first quarter increased 28.1% to $46.2 million from the last fiscal year’s quarterly number. Adjusted product development and engineering expenses increased 33.7% from the year-ago quarter to $46.5 million.
The non-GAAP operating margin of 9.3% contracted significantly from 29.8% reported in the last fiscal year quarter.
Balance Sheet and Cash Flow
As of Apr 30, 2023, cash and cash equivalents were $164.2 million, down from $235.5 million as of Jan 29, 2023.
Account receivables for the reported fiscal first-quarter 2024 were $145.4 million, down from $161.7 million in fourth-quarter fiscal 2023.
Long-term debt was $1.34 billion, significantly higher than $1.29 billion in the previous fiscal quarter.
In the reported fiscal quarter, the company used $89.9 million of cash in operations compared with $18.8 million in the previous quarter. Free cash flow in the fiscal first quarter was an outflow of $103.96 million.
Guidance
For second-quarter fiscal 2024, management expects net sales of $233-$243 million.
The non-GAAP gross margin is expected to be 47.5-49.5%. Also, management projects SG&A expenses of $45-$47 million and research and development costs of $44-$46 million.
The non-GAAP-based bottom-line is expected in the band of $(0.02)-$0.06 per share.
How Have Estimates Been Moving Since Then?
It turns out, fresh estimates have trended upward during the past month.
The consensus estimate has shifted 6.06% due to these changes.
VGM Scores
At this time, Semtech has a poor Growth Score of F, a grade with the same score on the momentum front. Charting a somewhat similar path, the stock was allocated a grade of D on the value side, putting it in the bottom 40% 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.
Outlook
Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Semtech has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
Performance of an Industry Player
Semtech is part of the Zacks Semiconductor - Analog and Mixed industry. Over the past month, Analog Devices (ADI), a stock from the same industry, has gained 2.5%. The company reported its results for the quarter ended April 2023 more than a month ago.
Analog Devices reported revenues of $3.26 billion in the last reported quarter, representing a year-over-year change of +9.8%. EPS of $2.83 for the same period compares with $2.40 a year ago.
For the current quarter, Analog Devices is expected to post earnings of $2.53 per share, indicating a change of +0.4% from the year-ago quarter. The Zacks Consensus Estimate has changed -0.2% over the last 30 days.
The overall direction and magnitude of estimate revisions translate into a Zacks Rank #3 (Hold) for Analog Devices. Also, the stock has a VGM Score of D.
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