Is RTI Surgical (RTIX) Stock Undervalued Right Now?
A month has gone by since the last earnings report for Xilinx, Inc. XLNX. Shares have added about 8.1% in that time frame.
Will the recent positive trend continue leading up to its next earnings release, or is XLNX 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 drivers.
Xilinx’s Q4 Earnings & Revenue Beat Estimates, Guides Well
Xilinx reported fourth-quarter fiscal 2018 GAAP earnings of 64 cents per share, marking year-over year growth of 12.3%. Excluding the unusual one-time cost related to executive transition, earnings per share came in at 77 cents. The Zacks Consensus Estimate was pegged at 66 cents.
Revenues for the quarter came in at $672.9 million, which is above the mid-point of its guided range of $635-$665 million (mid-point $650 million). The revenue figure surpassed the Zacks Consensus Estimate of $650 million as well.
Advanced Products Drive Top-Line Growth
Management noted that Xilinx’s revenues recorded growth for the 10th consecutive quarter, reflecting product strength. This uptick was primarily driven by robust performance of the company’s 16nm, 20nm and 28nm products.
Product wise, Advanced product revenues jumped 28% year over year and 7% sequentially. We note that the segment’s contribution to total revenues was 57%, a significant increase from 49% in the year-ago quarter and 56% reported in the previous quarter.
The robust performance of Advanced products was chiefly driven by solid demand for its Zynq SoC platform, and 20-nm and 16-nm nodes. Revenues from the Zynq SoC platform recorded 60% year-over-year growth, backed by robust demand in all of the company’s end markets i.e. automotive, industrial, aerospace and defense, communication and consumer.
The 20-nm sales soared 50% year over year in the reported quarter, chiefly driven by strength in multiple end markets. However, Xilinx noted that the 16-nm was the top performer in the quarter.
Revenues from core products declined 6% from the year-earlier quarter. However, the revenue figure increased 6%, sequentially.
On basis of the end market, Communications & Data-Center segment revenues (34% of total revenues) dipped 8% year over year, but grew 2% sequentially. The Industrial, Aerospace & Defense segment revenues (48% of total revenues) climbed 25% on a year-over-year basis and 10% on a sequential basis. The Broadcast, Consumer & Automotive revenues (18% of total revenues) ascended 17% year over year, but declined 7% sequentially.
Geographically, the company registered year-over-year growth in every region. Revenues from North America, Europe, Japan and Asia Pacific were up 10%, 26%, 17% and 2%, respectively. Sequentially, North America, Europe, Japan and Asia Pacific registered increase of 5%, 20%, 7% and 1%, respectively.
Product Strength: Key Catalyst
Xilinx’s ongoing transition from a FPGA provider to an all-programmable devices producer has been helping the company gain market share. Its expanding product portfolio, which includes the Zynq RFSoC platform, is assisting it to counter intense competition from the likes of Intel. The company’s Zynq portfolio, which is implemented in both the 28-nm and 16-nm nodes, delivered sturdy top-line growth in the quarter.
Management is also optimistic over the demand of its Ultrascale+ FPGAs data-center operators for providing FPGA-as-a-Service. Amazon was the first to use Xilinx chips, and started offering FPGA-as-a-Service in May 2017.
Since then, the company has got five contracts for FPGA-as-a-Service deployments, which, however, haven’t come online yet. The list, which includes companies like Alibaba, is in the process to deploy two generations of FPGA-as-a-Service by using Xilinx’s Ultrascale+ FPGA chips.
Furthermore, the company recently rolled out a product category — Adaptive Compute Acceleration Platform (ACAP) — under its Everest project. Under this project, Xilinx “will deliver the industry’s first 7-nanometer ACAP product family.” The company expects to tape-out its first ACAP product this year.
Gross margin expanded 120 basis points (bps) year over year to 70.7%, and came in above the mid-point of the company’s guided range of 69-71% (mid-point 70%).
Operating expenses flared up 14.2% year over year to $285.8 million. However, excluding the unusual one-time cost related to executive transition, operating expenses came in at $252.4 million, lower than management’s expectations of $255 million. As a percentage of revenues, operating expenses (excluding the unusual one-time cost related to executive transition) amounted to 37.5%, reflecting 360-bps contraction, on a year-over-year basis.
Reduced operating expenses (excluding the unusual one-time cost related to executive transition) as a percentage of revenues, along with healthy revenue growth and improved gross margin, resulted in year-over-year expansion of 470 bps in operating margin, which came in at 33.2%. Additionally, we note that the company registered more than 30% of operating margin for the second consecutive quarter.
In dollars, the company posted operating income of $189.8 million, up 9.4% year over year. Excluding the unusual one-time cost related to executive transition, operating income was up 28.7% year over year to $223.1 million.
Balance Sheet, Cash Flow & Shareholders’ Return
Xilinx exited the reported quarter with cash and cash equivalents of approximately $3.45 billion compared with $3.54 billion recorded in the previous quarter. The company has total long-term debt (excluding current portion) of about $1.21 billion, down from $1.73 billion reported in the previous quarter.
Xilinx generated cash of $217.7 million from operations and incurred $21 million as capital expenditure during the fiscal fourth quarter. The company paid $89.3 million in dividends and repurchased approximately 2.3 million shares for $163.4 million.
In fiscal 2018, the company generated cash of $795.5 million from operations and incurred $49.9 million as capital expenditure. It paid $353.1 million in dividends and repurchased approximately 6.9 million shares for $474.3 million.
For first-quarter fiscal 2019, Xilinx projects revenues in the range of $660-$690 million (mid-point $675 million). The mid-point of the company’s guided range is currently higher than the Zacks Consensus Estimate of $664.7 million.
Management predicts the Advanced Products segment to record growth. Xilinx anticipates the Broadcast, Consumer & Automotive end markets to improve year over year. On the other hand, the communication and data-center end market is estimated to register year-over-year decline.
Gross margin is expected between 69% and 71%. Operating expenses are projected at $260 million. Tax rate is estimated between 10% and 14%.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed an upward trend in fresh estimates. There have been seven revisions higher for the current quarter
Xilinx, Inc. Price and Consensus
Xilinx, Inc. Price and Consensus | Xilinx, Inc. Quote
At this time, XLNX has an average Growth Score of C, however its Momentum is doing a lot better with an A. However, 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 C. If you aren't focused on one strategy, this score is the one you should be interested in.
Our style scores indicate that the stock is more suitable for momentum investors than growth investors.
Estimates have been trending upward for the stock and the magnitude of these revisions looks promising. Notably, XLNX has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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