RBC noting that their recent checks, underscored by Best Buy's commentary last week, indicate demand for consumer electronics is solid. Firm expects DSP Group (NASDAQ:DSPG) to report a good 3Q06, which is seasonally strongest. They believe DSPG continues to incrementally gain market share, mainly at the expense of Sitel. The buyout of Philips Semiconductor may also present opportunities down the road.
Firm sees ongoing industry interest in new cordless phone models that enable VoIP, WiFi or cellular calling. Many vendors gain PR points today launching phones with price-points at $250+ list prices, targeting very early adopters. They believe many of these products are yet to hit the mainstream and expect more mature products to appear in 2007 and beyond. Firm believes DSPG is well positioned with leading consumer electronics products that will target the mass market.
Firm notes DSPG shares have been under pressure, trading close to 52-week low as few major sellers came to the market, with no apparent fundamental trigger. With over half of valuation in net cash and ongoing buyback, they reiterate Outperform as shares seem undervalued, trading well below peers at 9x P/E FY06E ex. cash and 13x EV/NOPAT. Price tgt is $34.
Notablecalls: While this note contains no new information, RBC makes a solid case for the stock. Should be good for a bounce in the coming days w/ stop just below $22.