Microchip Technology Inc. (NASDAQ:MCHP) — The last time I reviewed MCHP was on Sept. 14, 2016, when I said that it looked cheap at $57, and that traders should consider buying it for a target of $64. But in January, the stock broke from $66.75 to consolidate in the mid-$70s before smashing through $74.50 last week.
On Feb. 8 Standard & Poor’s Capital IQ renewed its four-star Buy opinion on the stock and raised its 12-month target to $85 from $75. They also increased their fiscal year (March) 2017 estimate by 15 cents to $3.76 and their FY 2018 to $4.11 from $3.97. These changes were due to an earnings and top-line surprise in the December quarter when the company reported EPS of $1.05, which beat the Capital IQ consensus of 90 cents.
Sales rose 0.8% above the September quarter due to higher microcontroller and analog revenues. S&P said in their February note that the Atmel acquisition contributed to the earnings and revenue surprise.
Last week’s breakout is supported by fundamental and technical factors: Technically the breakout from $74.50 followed a premature high-volume breakout in February. After a one-day decline, MCHP consolidated for two months before breaking out last week from the consolidation at $72 to $74.50. Accumulation has been steady since February, and an MACD buy signal was triggered last week when the price broke through the 50-day moving average at about $73.
Yesterday’s close ($76.73) exceeded the February high at $76.50 and is predictive of a higher near-term ascent. Therefore traders may wish to capitalize on this favorable pattern by attempting to buy MCHP at $75 with a target of $85 for a proposed gain of over 13%.
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