Thursday, November 02, 2006

Color on quarter: Maxim Integrated (NASDAQ:MXIM)

Several firms are commenting on Maxim Integrated (NASDAQ:MXIM) following results issued last night:

- Goldman Sachs notes Maxim's sales decline was attributed to a mismatch of demand with internal inventory, rather than an inventory reduction in the channel, as the company built channel inventory. However, they continue to believe that a channel inventory correction is underway, and expect that to be the other shoe to drop for Maxim over the next 2 quarters. In the 2004 inventory correction, Maxim saw a sales decline 2 quarters later than competitors such as Analog Devices, National and Intersil. Firm believes this is due to Maxim operating with a higher backlog and lead times. Thus, they would expect the company to get impacted by the current correction over the next 1-2 quarters. Firm islowering their below-consensus EPS estimates to reflect the lower sales, lower gross margin, and higher tax rate. Tgt is cut to $30 from $31.

- Citigroup notes that on one hand they admire MXIM for pushing aggressively toward a more application specific model from 18% of revenues currently to 35% in FY08. However, MXIM shares are the second worst performers in firm's coverage this year (-20% YTD) as its strategic shift is proving as significant as fundamentally changing DNA, a transformation that is less than a quarter complete, as measured by application specific mix shift. They expect Bulls to contend that that the stock is inexpensive, that the free cash flow yield is compelling, and that now is a good time to buy bad news. Firm's more cautious view is that the downward margin reset risk remains significant and with it significant downside risk in the stock.

In summary, MXIM shares bounced around after market, up $0.10 to $0.65 after losing $0.94 on the day as investors clung to backlog data (3-month flat qq) and overlooked the plethora of bad news, indicative in firm's view of hopefulness that MXIM can turn its ship around. eaten down analog stocks like MXIM are abundant, though high quality, clean, and catalyst rich stories which have strong free cash flow yields are not. There will likely be a time to get more bullish on MXIM shares, though now is not the time and presently they prefer names such as MCHP, NSM, ONNN, FCS and ISIL. Maintains Hold and $33 tgt on MXIM.

Notablecalls: Joe Osha from Merrill made a nice call ahead of results yesterday. While the stock bounced in after hrs trading I don't think the bounce will have much legs over the next couple of days. Would be looking for cracks in buy interest.


Broker A said...

Great blog, by the way.

notablecalls said...

Thank you!

BULL said...

Just curious regarding your investment theories and personal trade/management policies, Do you intraday trade or invest more with LT thoughts in mind?

Also, when you refer to "cracks in buy interest", how do you define that phrase?

Thanks again for your daily thoughts and postings....may be a newbie but enjoy learning and studying through your comments here.