Has Integrated Devices Been Punished Too Hard by Investors and Analysts Alike?

Integrated Device Technology Inc. (NASDAQ: IDTI) has had a bad week. So bad that some investors have to be wondering if there was a broad overreaction on the news. The chip component maker’s third-quarter earnings were in line with estimates. This might be fine for many companies, but it effectively ended IDT’s nearly two-year-old habit of beating earnings estimates.

24/7 Wall St. took a look at the news and at the analyst calls after the news. Trying to call a bottom on anything in a highly volatile market is more than tricky. This is not an attempt to call a bottom. Still, with such a sharp drop and with valuations now well below the broader market, some investors may want to consider what IDT’s prospects are for the long haul.

Its $0.35 in earnings per share (EPS) was equal to estimates and up from $0.25 previously. Sales were up about 5% on its communications sales, and its gross margin was roughly 63%. Guidance of about $187 million in sales and $0.32 to $0.34 in EPS was shy of the consensus estimates of $196.3 million and $0.36 EPS, respectively.

Several brokerage firm analysts were cautious with downgrades or negative calls, but Wedbush Securities decided to go out on a limb and raise its rating to Outperform from Neutral with a $27.00 price target.

Bank of America Merrill Lynch downgraded the stock to Neutral from Buy and lowered its price objective to $26 from $31. Weaker communication sales were telegraphed after two quarters of outsized growth. There was also an enterprise/data center slowdown ahead of new Intel launches. Still, IDT is considered to have solid execution and free cash flows.
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S&P Capital IQ has a Hold rating and kept its $12 price target for 12 months out. The group adjusted its fiscal year 2016 EPS estimate to $1.34 from $1.35. The firm is optimistic about expansion in auto and industrial after the recently completed ZMDI acquisition. It sees IDT benefiting from more mobile devices embedding wireless charging technology.

Topeka Capital kept a Buy rating but lowered its price target to $26 from $29. Also, Dougherty kept a Buy rating but lowered its price target to $28 from $33.

Tuesday’s price drop was by a whopping 26.8%, down to $18.67 from a prior closing price of $25.50. Another issue is that IDT shares had just seen their highest close since January 5 before the news. The following huge drop was also on over 25 million shares.

IDT’s shares closed down 2.7% at $18.16 on Wednesday with strong follow-on volume of just over 10 million shares. The 52-week trading range is $14.50 to $29.04. The growth rates may have been tempered here, but the stock is still valued at about 12 times expected earnings for the year ahead.