Technology

Analysts Sour on Sigma Designs Despite Positive Earnings

Chris Lange

Published: December 7, 2016 10:25 am

Last Updated: January 12, 2020 5:02 pm

When Sigma Designs Inc. (NASDAQ: SIGM) reported its fiscal third-quarter financial results after the markets closed on Tuesday, the company said that it had $0.09 in earnings per share (EPS) and $62.7 million in revenue. The consensus estimates from Thomson Reuters called for $0.08 in EPS and revenue of $63.38 million. The same period of last year reportedly had EPS of $0.13 and $61.58 million in revenue.

Gross margin during this quarter was 51.0%, compared with a gross margin of 49.9% in the previous quarter and 51.7% for the same period last year.

At the same time, operating expenses were $26.7 million, versus operating expenses of $27.2 million in the previous quarter and of $26.0 million for the year-ago period.

On the books, Sigma Designs cash, cash equivalents and short-term marketable securities totaled $69.6 million at the end of the quarter, versus $68.6 million at the end of the previous fiscal year.

Thinh Tran, president and CEO of Sigma, commented:

Our profitable third quarter was led by a healthy rebound in our Internet-of-Things revenue on top of our seasonally strong Smart TV business, strong gross margin performance, and lower operating expenses. We remain encouraged by our outlook for the Internet-of-Things business, which should continue to grow as consumer adoption of Z-Wave enabled products improves. For the long-term, we expect to capitalize on the multitude of new opportunities across our business to drive revenue, and combine this execution with cost reductions, in order to deliver stronger earnings.

However, after the earnings report a couple analysts downgraded the stock, or at least cut their price targets:

• Benchmark has a Buy rating but lowered its price target to $10 from $12.
• Lake Street Capital downgraded it to a Hold rating from Buy and lowered the target to $7 from $8.50.
• Needham downgraded it to a Hold rating from Buy.

Shares of Sigma were last trading down about 31% at $5.30, with a consensus analyst price target of $10.00 and a 52-week trading range of $5.41 to $8.60.