National Semi, Some Ammo For Bulls & Bears Alike (NSM)

National Semiconductor (NYSE: NSM) posted revenue of $499 million versus consensus $498.4 million and reported $0.33 EPS versus consensus of $0.31.  The problem is that the February quarter end was guided down to -1% to -5% sequentially, and Wall Street was only bracing for almost a 1% drop.  This will also hit margins.

We’ve seen at least one analyst call that is staying positive after earnings.  American Technology Research’s Doug Freedman has maintained his Buy rating and $31.00 price target this morning: "We do not view a dramatic downturn for NSM as likely from here and are therefore maintaining our Buy rating given the low valuation. Our $31 price target is based on 18.5x our forward 12-month EPS (CY09) of $1.66. Our CY08 revenue (up 8.8%) estimate continues to call for a stronger than seasonal summer off of two lower than seasonal quarters to start the year."  Freedman also noted the pronounced seasonality is due to inventory control.

Last week, Goldman Sachs lowered its estimates on National Semi along with its detailed chip and major stock sector call where it lowered earnings estimates and cut price targets on so many stocks and sectors in its coverage universe.  Last month, UBS downgraded National Semi to a Neutral rating from its prior Buy rating.

It appears that JMP Securities raised its rating to an Outperform today, although we haven’t reviewed the full note.

We’ve already seen forecasts out of enough downstream buyers by now that this drop shouldn’t be a huge surprise to anyone.  Handset makers like Nokia (NYSE: NOK), and Ericsson (NASDAQ: ERIC) have already shown caution ahead, and no one is expecting anything great out of Motorola (NYSE: MOT) at this point.

National Semi’s shares closed yesterday at $23.51 and its 52-week trading range is $21.54 to $29.69.  Shares are down almost 2% pre-market at $23.06.   We generally have the bar set fairly low for companies trading in the lower third of their 52-week trading bands. 

Jon C. Ogg
December 7, 2007

Jon Ogg can be reached at [email protected]; he does not own securities in the companies he covers.