Linear Technology Corporation (LLTC) is a leading OEM of analog and mixed signal semiconductors. December quarter revenue was in-line with consensus expectations, although the EPS exceeded. Forward guidance is for a 1%-5% revenue growth in the next quarter. We believe that the company has strong fundamentals. Linear generates strong cash flow, which enables management to expand its R&D capabilities and return cash to shareholders in the form of share repurchases and dividends.
Management recently leveraged the balance sheet, which had a positive impact on the EPS. The shares are currently trading at a 17.3x multiple of our 2008 earnings estimate (P/E). Linear Technology has an attractive business model that features some of the most favorable margins within the technology sector. The company grew sales by 30 per cent during a semiconductor down-cycle in 2005, and 4 per cent in fiscal year 2006. Growth tapered off in fiscal 2007, as management continued to pursue only those business lines that afforded gross margins at the level historically enjoyed by the company.
As a result, cash flow has been very consistent. Linear has around $807 million in cash and short-term investments ($3.61 a share). Management continues to pay a dividend, and recently raised the amount to $0.21 per share. Historically, the company has done extremely well during economic downturns; therefore, the stock should continue to do well as the cycle dips. We view LLTC as one of the lowest risk stocks in the technology sector. We are reiterating our Hold rating and six-month target price of $35, which is18.8x P/E.
Sejuti Banerjea contributed to this report.
Read the full analyst report on LLTC.
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