Thursday, March 13, 2008

Sigma Designs (NASDAQ:SIGM): Bounce?

Last night a very actively trading NCN (Notable Call Network) member pinged me in after hours saying he was buying Sigma Designs (NASDAQ:SIGM):

SIGM is a stock that I follow very closely and they reported earnings in after hours today.
The company beat revenue slightly. They missed EPS by 3 cents due to higher than expected tax rate.

The stock has been destroyed since it reported earnings 3 months ago. From 73 to 20s in AH today.

I think a lot of very bad news was priced in.
Short interest is 29 percent.

I listened to the whole conference call in after hours and actually got fairly excited. I bought 50k shares in my Scalp Account for a trade between 21.00 and 22.60 My average is 22.12

The company guided revenue lower for next Q to 60 million versus estimates of 77 million. They said the guide lower was a one time event. Company actually offered very nice revenue guidance for the following 3 Qs.

I feel the analysts are likely to vigorously defend the stock in the morning. Throw in how the stock has been killed the last 3 months and the 29 percent short interest and I think SIGM has an excellent chance to bounce nicely on Thusday. I actually think SIGM has a decent chance to roll green tomorrow. A great deal will depend on the analyst comments in the morning.

At this time I have no exit strategy on this trade, but will form one tomorrow morning. AH has low volume now and I would not suggest chasing it if any of you want to join me on this trade. It might offer a better entry in premarket tomorrow.

As I am writing this the last trade is 22.85

Happy Trading

Notablecalls: I do like SIGM here for a bounce. Although the analyst community isn't as positive on the stock as the trader expected them to be, I feel most of the bad stuff is priced in at current levels.

Here is a quick overview of comments:

- Piper Jaffray is definitely the most cautious firm out there lowering their tgt to $25 from $39 while maintaining Neutral rating. PJ notes the midpoint of management's FY09 revenue guidance implies $80M-$95M in quarterly revenue for the last three quarters of FY09. Whil they believe in the growth of the IPTV market (8M units in `07 and 14M units in `08) as well as the Blu-ray DVD player market (1M units in `07 and 5M units in `08), they believe the company would need to achieve nearly 95% market share and stable pricing in these markets to hit its $325M (midpoint) revenue target for FY09.

Many investors may argue that a $25 price target and assumed P/E multiple are too low. However,Sigma's consumer IC peer group trades with an 11x CY09 P/E multiple. As time passes, if they feel confident in Sigma's revenue recovering from Q1 FY09, and if they see little progress made by competitors, they may re-evaluate their stance.

- RBC Capital is maintaining their Outperform rating while lowering tgt to $30 from $35. Firm notes Motorola just bought too much product last quarter and it's evident in Sigma's inventories which increased 40% sequentially from $18.9M to $26.3M.

Demand overall, in their assessment looks healthy for IPTV and if anything total unit growth should display strong positive trends for the full year. The growth however will be lumpy and Sigma will often times have to do as STB makers request, who in turn are doing what the carriers demand. Sigma has almost $9 in cash/share.

- ThinkEquity says SIGM reported Q4 in-line, but guided for a 2008 that will be back-end loaded because MOT ordered too many set-tops for AT&T in recent months. This should correct itself in about a quarter, and the year's $300-350 mln guidance was in-line with firm's previous $329 mln est. Firm has made insignificant changes to their full-year ests, resulting in a mostly unchanged valuation. U.S.-centric political risk aside-which is significant, given the risk for higher taxes, more regulation, inflation, assault on free-trade principles, "soaking" the rich, an anti-business climate, etc. Firm believes SIGM will prove to be one of their very best investment ideas for the next 12 months.

- Goldman Sachs cautious.

- Baird neutral.

- UBS reits Buy.


rsr said...

no mention that next year they actually pay "real taxes"? I listened to the CC and although they "say" that they will maintain margins, competition will eat margins eventually like they did for ESST, OVTI, ZRAN, and an alphabet soup listing of specialty chipmakers.

dcxavier said...

Nope, not this time either. Hope the stops were in place.

It's time to face up to the fact that bounces don't work in this market, no matter what the story. Don't fight, just short the crap out of it every time, that's been the winning strategy.

burephenom said...

Except for that HUM call he made yesterday. 9 points ain't too bad ha

notablecalls said...

Stubborn. Thats me.

Unknown said...

Watch this go down to $18 soon...this is like SNCR...

did u remember u recommed that some time back too based on short interest and low price after earnings...

There is a reason :)