Shares of Microsemi Corporation (MSCC) continue to warrant a Hold recommendation from senior semiconductors analyst Ken Nagy, CFA. For details, we looked into his latest report:
Microsemi is an OEM [original equipment manufacturer] of semiconductor analog and mixed signal ICs [integrated chips], with substantial presence in the high reliability space. March quarter results were inline with consensus estimates. Bookings outpaced revenue for the eighteenth consecutive quarter. With strength in its served end markets and restructuring benefits kicking in, both the top and bottom lines are expected to improve in 2007.
However, we expect that cost reductions will be limited to PowerDsine synergies, and margin improvements are more likely to come from an improvement in the product mix. We are continuing with our Hold rating on MSCC shares.
MSCC shares are currently trading at a 21.7x multiple of our 2007 EPS [earnings per share] estimate (price-to-earnings). The company operates in attractive markets that are expected to grow strongly in 2007. Management's disciplined execution has resulted in steady top and bottom line expansion over the last three fiscal years, and the current margin pressure comes from the lower-margin acquired businesses.
Although the expected benefits of the last phase of restructuring are around $6-10 million and the high-rel business is expected to gain traction, the acquisitions are likely to dampen margin expansion in 2007. This seems to indicate that operating costs will increase as revenue increases. However, some integration synergies are also expected to kick in. We are reiterating our Hold rating and $24.00 price target.
Read the analyst report on MSCC