Integrated Device Technology (IDTI) Has put
together a number of positive earnings surprises and that stock
has risen to a
Zacks Rank #1 (Strong Buy). It
is the
Bull of the Day.
Consolidating To Core Products
The company is selling off some old business lines, including the
recent sale of PCI Express to PMC for $100M in cash. That deal
follows a March transaction with Atmel for smart meter business.
Some would say the shrinking down and getting to a laser focus on
the core is simply the company cleaning itself up for an
acquisition. I could not agree more, but I also like the business
lines, wireless power and the big move in estimates.
Company Description
Integrated Device Technology is a timing chip company that
allows the processor and switches. Rapid IO switches are key to
their communications product set and sees China Mobile as being a
huge customer in the coming year. RF or radio frequency is also
another area of expertise as is the wireless power segment. So
they have a lot of things going on in some interesting areas that
are going to be seeing growth for some time.
Good Earnings History
Looking to the earnings history, I see a stock that has beaten
the number 5 of the last 6 reports, with the exception being a
time when the company met estimates. The most recent quarter was
a loss of $0.02, but that was two cents better than the loss of
four cents that analysts were expecting. I expect the company to
swing back to profitability in the coming quarter.
All About Timing
While the chips are based on the idea of timing, the idea of
being a Bull of the Day is all about timing too. The Asian
markets have been on fire throughout the first half of 2013 and
despite a recent correction from the top, most signals point to
continued strength from that geography. In following that idea,
the major of chipsets are coming from Asian markets, so if those
areas are doing well, it stands to reason that the businesses
that are located there will do benefit from that.
Sales Estimates Tick Higher
A key idea to aggressive growth investors looking at a chip
company is revenue growth. Without it, a company has to trim
expenses and R&D budgets to maintain profitability and that
sector has been historically bad at that. IDTI does have revenue
growth and more importantly is that the analysts that are closest
to the story see the growth story getting better. Recently the
Zacks Consensus Estimate for revenue has ticked higher. The
FY2014 estimate was calling for $498M, but that has bumped higher
to $503M. FY2015 has also seen an increase, from $534M to
$539M.
Valuation
The valuation picture for IDTI is a mixed picture. The trailing
and forward PE multiple show a significant premium tot he
industry average, while the more conservative measure show the
company trading at a discount. The 35x forward PE is nearly
double the industry average of 19x, and the 60x trailing multiple
is just under triple the industry average of 21x. That more
conservative measure, price to book, shows the company trading at
a discount, with a 1.9x multiple versus a 2.2x multiple.
The Chart
The chart shows a stock that has made a significant move over the
past few months. The idea here is that this could be the
precursor to an even more dramatic move higher as demand for
electronics is soaring. With a decent valuation, more expected
growth and a company that could do well alone or as part of a
bigger concern (via acquisition), IDTI is worth a deeper look.
Brian Bolan is a Stock Strategist
for Zacks.com. He is the Editor in charge of the Zacks Home Run Investor
service, a Buy and Hold service where he recommends the
stocks in the portfolio.
Brian is also the editor of Breakout Growth Trader
a trading service that focuses on small cap stocks and also
carries
a risk limiting strategy. Subscribers get daily emails along with
buy, and sell alerts.
Follow Brian Bolan on twitter at
@BBolan1
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