Their assessment is that the recent sell-off in semiconductors was potentially driven by profit taking, misplaced handset concerns, if any, and modest auto macro weakness. The sell-off in Skyworks Solutions Inc. (NASDAQ: SWKS) was called overdone, and Sterne Agee would consider buying here.
Considering the broad sell-off in chips stocks such as Micron Technology Inc. (NASDAQ: MU), SanDisk Corp. (NASDAQ: SNDK), Spansion Inc. (NYSE: CODE), NXP Semiconductors N.V. (NASDAQ: NXPI) and Avago Technologies Ltd. (NASDAQ: AVGO), the firm thinks these would all be viable buy options as well. This is based on catalysts including the China iPhone and iPad launches, share repurchases, and licensing and near field communication (NFC) tailwinds.
SanDisk content on iPhones is up significantly, and with the launch of the new iPhone and iPad in China, the company is positioned well for upside. Sterne Agee considers SanDisk close to “de-risked.” Avago has the same upside potential for the China release, as a leader in handset filters, storage consolidation and cost synergies. NXP Semiconductors finds its niche in NFCs for the China release.
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The yen has depreciated 10% to 12% in the past month. While Micron just reported, Sterne Agee would reiterate SanDisk into December. As noted before, every 10% depreciation in the yen is 200 to 400 basis points of gross margin upside for SanDisk. Sterne Agee believes, given the lag with wafer purchases in yen flowing through, the gross margin upside potentially manifests in the first half 2015 when seasonal demand is weaker, and that this is not reflected in consensus estimates.
The Sterne Agee ratings on all these selective chip stocks are Buy. No price targets were directly included in the report from late Wednesday, but the relative consensus price targets from Thomson Reuters and a 52-week range are included below. Thursday’s reaction has been mixed among these key chip stocks.
Micron Technology Inc. (NASDAQ: MU) has a consensus price target of $40.17 and a 52-week range of $16.17 to $34.85. Micron shares were up 0.7% at $33.72 in midday trading on Thursday.
Avago Technologies Ltd. (NASDAQ: AVGO) has a consensus price target of $93.67 and a 52-week range of $41.83 to $90.88. Avago shares were down 3.6% at $82.42 in Thursday’s midday trading.
Skyworks Solutions Inc. (NASDAQ: SWKS) has a consensus price target of $62.05 and a 52-week range of $23.27 to $59.25. Skyworks shares were down only 0.1% at $53.25 in midday trading on Thursday.
NXP Semiconductors N.V. (NASDAQ: NXPI) has a consensus price target of $75.73 and a 52-week range of $35.09 to $73.82. Its shares were trading down 1.9% at $64.80 in early afternoon trading on Thursday.
SanDisk Corp. (NASDAQ: SNDK) has a consensus price target of $113.38 and a 52-week range of $59.65 to $108.77. While the stock had bounced from a low of $92.01 in early trading on Thursday, SanDisk shares were still down 1.3% at $93.86 in early afternoon trading.
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Spansion Inc. (NYSE: CODE) has a consensus price target of $24.75, and its 52-week range is$10.69 to $23.94. Spansion shares were down 0.6% at $21.16 in midday trading on Thursday.
Included below is a snapshot of the valuation metrics that Sterne Agee has used for each of these key chip stocks.
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