Linear Technology Corporation (LLTC) is a leading OEM of analog and mixed signal semiconductors. March quarter revenue was in-line with consensus expectations, although the EPS exceeded. Forward guidance is for a 1-5% revenue growth in the current 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. The management recently leveraged the balance sheet, which had a positive impact on the EPS. We are reiterating our Hold rating on LLTC shares.
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 30% during a semiconductor down-cycle in 2005, and 4% 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 $908 million in cash and short-term investments ($4.09 a share). The 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 setting a target price of $35.00 (18.5x P/E).
Sejuti Banerjea contributed to the report.
Read the full analyst report on LLTC
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.