How a Key Analyst Sees Semiconductors Closing Out 2015

Pitzer picked a few of the winners as NXP Semiconductors N.V. (NASDAQ: NXPI), Intel Corp. (NASDAQ: INTC), Analog Devices Inc. (NASDAQ: ADI), Microchip Technology Inc. (NASDAQ: MCHP) and Applied Materials Inc. (NASDAQ: AMAT).

The bottom line in the report was stated as:

For the 2nd consecutive quarter, we expect a “Meet and Lower” Earnings Season. Whether calendar fourth quarter represents the last negative revision is atypically dependent on the macro – troughs usually occur when the production/consumption GAP is so large, actual sell-thru is inconsequential – that is not the case this time. Despite an uncertain macro, stocks that don’t look cyclically cheap, and slowing consumer demand, there are structural tailwinds to support a re-rating higher for the sector – specifically, slowing supply growth, rising barriers to entry, consolidation and a mix shift away from consumer should allow Semis to outgrow global GDP for the first time since the mid-1990s. Our analysis suggests stock lows this cycle have already been established, volatility around the macro will persist, and Semis should be under accumulation.

Credit Suisse gave a few other sector highlights as:

• Calendar third quarter revenues should be mostly in-line with consensus growth of roughly 3% quarter over quarter versus seasonal of about 5% quarter over quarter.
• Calendar fourth quarter revenue should be flat to down 2% quarter over quarter versus consensus of up ~3% quarter over quarter and seasonal of down ~1% quarter over quarter.
• Calendar 2016 revenues should be flat to down 2% year over year versus consensus of 3% to 5% year over year growth.
• Earnings per share (EPS) declines will outpace revenue in the near-term due to negative leverage – expect roughly a 1,000 to 1,200 basis point downside to calendar year 2016 EPS.
• Calendar year 2016 EPS estimates have declined about 15% from peak versus the 5 prior corrections of 24% to 74% with a median of about 25%.

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Shares of NXP were up 2% at $89.07 on Monday afternoon. The stock has a consensus analyst price target of $125.62 and a 52-week trading range of $53.81 to $114.00.

Intel shares were relatively flat at $32.15 on its 52-week trading range of $24.87 to $37.90. The stock has a consensus analyst price target of $33.79.

Shares of Analog Devices were relatively flat at $56.62. The stock has a consensus analyst price target of $67.56 and a 52-week trading range of $42.59 to $68.97.

Microchip shares were down 0.2% at $46.18 on its 52-week trading range of $36.92 to $52.44. The stock has a consensus analyst price target of $49.40.

Shares of Applied Materials were down 0.7% at $15.55. The stock has a consensus analyst price target of $21.39 and a 52-week trading range of $14.25 to $25.71.