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Semtech Receives Price Target Increase of 20% on Promising Growth Prospects

By Don Francis, Editor
April 3, 2024 8:04 AM UTC
Semtech Receives Price Target Increase of 20% on Promising Growth Prospects

Craig-Hallum's Anthony Stoss raised their price target on Semtech (NASDAQ: SMTC) by 20% from $30 to $36 on April 1, 2024. The analyst maintained their Buy rating on the stock.

In their note assessing Semtech's fourth quarter and fiscal year 2024 earnings report, Stoss highlighted the company's renewed growth and revenue acceleration potential. They specifically mentioned the promising prospects of Semtech's new AI products ramp and its strength in the passive optical network (PON) sector in China.

According to Stoss, Semtech's revenue for the second quarter of 2025 is expected to grow around 4% sequentially, driven by the strong performance of its China PON segment. The analyst indicated that Craig-Hallum anticipates a contribution of $20 million to $25 million from the PON segment to Semtech's second-quarter revenue, a significant increase from $12.5 million in the same period of 2023.

Semtech's fourth-quarter 2024 results showed a loss per share of $0.06, missing the Zacks Consensus Estimate of $(0.05) and representing a 112.8% decrease compared to the previous year's fourth quarter. However, the company's revenues of $192.95 million surpassed the Zacks Consensus Estimate by 0.89% and increased by 15.2% year-over-year.

The gross margin for the quarter stood at 48.9%, down 22% year-over-year, while operating expenses increased by 15% to $76.5 million. Operating income experienced a significant decline of 53% to $17.8 million, resulting in an operating margin of 9.2%, down 59% year-over-year. EBITDA also decreased by 45.6% to $24 million.

For the fiscal year 2024, Semtech reported earnings per share of $0.14, a 95% decrease from the previous year. However, the company's revenue of $868.8 million represented a 14.8% increase year-over-year. The gross margin for the year was 49.5%, down 23% from the previous year, while operating expenses rose by 22% to $337.5 million. Operating income decreased by 56% to $92.7 million, resulting in an operating margin of 10.7%, down 62% year-over-year. EBITDA showed a more modest decline of 48.4% to $122 million.

Looking ahead to the first quarter of 2025, Semtech's management provided guidance, expecting EPS to range from $(0.04) to $0.04 and revenue to be between $195 million and $205 million. The company anticipates a gross margin of 49.5%, operating expenses of $77 million to $80 million, and operating income of $17.5 million to $23.5 million. The projected operating margin is 10.3%, with EBITDA estimated to be between $24.8 million and $30.8 million.

Semtech's President and CEO, Paul H. Pickle, expressed optimism about the company's growth prospects, stating that the demand for their semiconductor business has progressed from stable to growing. Pickle also highlighted Semtech's positioning to benefit from near-term growth trends, particularly in the infrastructure end market, despite constraints in their hardware business.

Executive Vice President and CFO Mark Lin noted that working capital improvements contributed to positive operating and free cash flows in the fourth quarter. Lin also mentioned that the company completed an optional principal prepayment on its credit facility and implemented a single enterprise resource planning (ERP) system, which is expected to enhance efficiency and internal controls.

In addition to Craig-Hallum's updated rating, other analysts also revised their price targets for Semtech on April 1, 2024. Stifel Nicolaus's Tore Svanberg raised their price target by 19.2% from $26 to $31 and maintained their Strong Buy rating on the stock. Baird's Craig Ellis increased their price target by 25% from $40 to $50 and also maintained their Buy rating. Needham's Quinn Bolton raised their price target by 46.2% from $26 to $38 and maintained their Buy rating.

Currently, 100% of the top-rated analysts rate Semtech as a Strong Buy or Buy, with no analysts considering it a Hold or recommending selling the stock.

Since Semtech's latest quarterly report on March 28, 2024, the stock price has increased by 2.5%. Year-over-year, the stock is up 24.7%. During the same period, Semtech has slightly trailed the S&P 500, which has risen by 26.2%.

It is worth noting that according to WallStreetZen, Craig-Hallum analyst Anthony Stoss is ranked in the bottom 49% out of 4,530 Wall Street analysts. Their average return stands at 0.1%, with a win rate of 46.4%. Stoss specializes in the Basic Materials and Communication Services sectors, among others.

Semtech Corporation is a company that designs, develops, manufactures, and markets analog and mixed-signal semiconductor products and advanced algorithms. They offer a wide range of signal integrity products used in various infrastructure and industrial applications, including optical data communications, video transport products, and integrated circuits for data centers and wireless base station optical transceivers. Semtech also provides protection products, wireless and sensing solutions, and power products.

Headquartered in Camarillo, California, Semtech serves original equipment manufacturers and their suppliers in the enterprise computing, communications, and consumer and industrial sectors. The company sells its products directly, as well as through independent sales representatives and distributors worldwide.

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