UBS is out with a major call on RF Micro (NASDAQ:RFMD) upgrading the stock to a Buy with a $3 tgt.
The firm upgrades RFMD to Buy from Neutral for the following reasons: 1) They significantly raise estimates as recent checks show strengthening momentum 2) With major restructuring measures complete, RFMD is likely to see sizeable margin expansion due to increased utilization, and 3) They expect more positive action to reduce debt burden. Upgrade to Buy & raise PT to $3, equal to P/S of ~1.
March marks the trough in fundamentals; Multiple drivers going forward
Checks confirm that March was the tough, and strong momentum during the current restocking phase could support a high single digit (possibly low double digit) sequential growth in June qtr, compared to consensus view of +3% seq for June. Also, impact from recent restructuring should also contribute towards higher margins. UBS further believes that company’s new product initiatives aimed at reducing die size should also contribute towards higher revenue and margins.
Raising estimates significantly above consensus
Based on their positive view for the sector and improving outlook for RFMD, they are significantly raising our estimates. For FY10, they are modelling pro forma Rev/EPS of $798m/$0.08 (cons $743m/-$0.04), up from $721m/$0.02. For FY11, they are forecasting pro forma Rev/EPS of $886m/$0.16 (cons $812m/$0.00), up from $802m/$0.11.
Notablecalls: I think this one can do $2+ in this market. UBS has done some digging and the numbers they have published today are BIG.
Stocks with similar charts (for example Ruby (RT) ) have done pretty well lately in reaction to upgrades.
The firm upgrades RFMD to Buy from Neutral for the following reasons: 1) They significantly raise estimates as recent checks show strengthening momentum 2) With major restructuring measures complete, RFMD is likely to see sizeable margin expansion due to increased utilization, and 3) They expect more positive action to reduce debt burden. Upgrade to Buy & raise PT to $3, equal to P/S of ~1.
March marks the trough in fundamentals; Multiple drivers going forward
Checks confirm that March was the tough, and strong momentum during the current restocking phase could support a high single digit (possibly low double digit) sequential growth in June qtr, compared to consensus view of +3% seq for June. Also, impact from recent restructuring should also contribute towards higher margins. UBS further believes that company’s new product initiatives aimed at reducing die size should also contribute towards higher revenue and margins.
Raising estimates significantly above consensus
Based on their positive view for the sector and improving outlook for RFMD, they are significantly raising our estimates. For FY10, they are modelling pro forma Rev/EPS of $798m/$0.08 (cons $743m/-$0.04), up from $721m/$0.02. For FY11, they are forecasting pro forma Rev/EPS of $886m/$0.16 (cons $812m/$0.00), up from $802m/$0.11.
Notablecalls: I think this one can do $2+ in this market. UBS has done some digging and the numbers they have published today are BIG.
Stocks with similar charts (for example Ruby (RT) ) have done pretty well lately in reaction to upgrades.
1 comment:
Could be a good short term ride, but I'd sell before the next earnings release. RFMD has been a serial disappointer since forever. If it's not defective chips, it's trouble on the manufacturing floor.
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