Reiterating his bullish case for Altera Corporation (AVP)], Zacks semiconductor analyst Abdul Saleh explains why the future looks bright for the manufacturer of high-performance, high-density programmable logic devices (PLDs):
'Even after reiterating its earlier guidance of flat to 3% revenue growth in early September, Altera reported a 1.2% decline in revenue. Revenue of $315.7 million missed consensus estimate of $325 million while EPS of $0.20 met the forecast. The shortfall in revenue was primarily due to the softening of the communication business in the quarter. Gross margin dipped to 63.8% from 64.6% generated in the June quarter and 67.6% in the year ago period.
'ALTR generated 40% of revenue from communications, where sales declined 1% quarter-over-quarter in a seasonally strong quarter. It appears that the recent weakness in the much talked about wireless infrastructure market is impacting Altera negatively. Industrial output was down 8% and computing fell 3% quarter-over-quarter, while Consumer grew roughly 14% quarter-over-quarter. For Q4, revenues are expected to be flat or down 4% sequentially while gross margin should be flat compared to Q3. We have adjusted our FY2007/2008 estimates and maintain our Buy rating.
'The stock is currently trading at 23.9 times our 2007 earnings estimate. We think inventory is being worked down and expect revenue growth to speed up by mid-2008. As a consequence, the company's shares appear attractively valued for the long-term investor at the current time. However, given the negative year-over-year revenue growth prospects we are reducing our target price to $23. This is derived by applying a target P/E multiple of 28.8x to our fiscal year 2007 EPS estimate, which is above the industry's median P/E multiple.'
Read the full analyst report on ALTR.
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