Credit Suisse’s calendar 2015 and 2016 earnings per share (EPS) estimates are $2.61 and $3.00 versus consensus estimates of $2.87 and $3.16, respectively. The firm’s estimates include accretion from Micrel. In other terms, the firm initiated fiscal 2016 EPS of $2.60 and fiscal 2017 EPS of $3.16 versus consensus estimates of $2.89 and $3.15, respectively.
The brokerage firm said in its report:
We continue to see Microchip as one of the most diversified and well run companies in the Semi Industry with (100 consecutive quarters of profitability and positive free cash flow) – the company appears modestly under-valued relative to its peers. Specifically, the company is currently trading at calendar year 2016 P/E on SBC-EPS of 14.4x versus peers of 17.5x, EV/EBITDA of 8.1x versus peers of 11.9x, and a dividend yield of 3.3% versus peers of 2.7%.
While many are concerned that Microchip is significantly under-growing peers, June quarter results and September quarter guidance excluding M&A seem more in-line with, rather than below, peers. Additionally, the company has a strong track record of M&A to augment organic growth, notably 5 acquisitions in the last 5 years with the most recent acquisition of Micrel expected to add $0.25 to EPS over the next 1-2 years. Microchip does not represent structural growth but it does represent cyclical growth with M&A upside – Credit Suisse sees a long-term organic growth of 3% to 5%, augmented by 100 to 300 basis points of M&A upside – which is appealing as markets enter into the bottoming process of the current industry correction.
Shares of Microchip were down 1.3% at $42.25 on Tuesday afternoon. The stock has a consensus analyst price target of $53.50 and a 52-week trading range of $36.92 to $52.44.
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