Semtech Corporation (NASDAQ:SMTC) — This maker of a wide range of analog and mixed-signal semiconductors has achieved a “five-star strong buy” opinion by Standard & Poor’s Capital IQ. The demand for high-end smartphones should continue for the future. This open-end demand should be a benefit to Semtech, since they develop and market protection devices, known as transient voltage suppressors (TVS), which protect against voltage spikes.
As a complement to TVS devices, the company also makes filter and termination devices that are in high demand. As a result of their specialized product mix, they could become a takeover target since their valuation is currently below that of peers.
S&P has a 12-month target price of $40 on SMTC stock, based on peers’ price-to-earnings ratio of about 19X Semtech’s fiscal year 2019 (Jan) earnings per share estimate of $2.12 and FY 2018’s increased estimate of $1.78 (raised from $1.68). Semtech reported Jan-Q EPS of 37 cents, which beat Capital IQ’s estimate of 35 cents. Tight cost controls and growth from optical transceivers and other products contributed to higher profit margins.
Technically, SMTC’s shares are in a powerful bull market. The stock is currently adjusting back into its bull channel after breaking from it late in December. Support rests at about $31, the top of the channel in January. Final support is at the bullish support line at $30.
Since the volume spike to the March high at $37.35, volume has been flat. Thus, a pickup in buying volume could be utilized as a buy signal. MACD is negative, but arching up. Try to buy SMTC stock at $31 or on an increase in buying volume for a trading target of $38 for a proposed gain of over 20%.
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