On Jul 6, 2013, Zacks Investment Research upgraded Diodes Inc. (DIOD) to a Zacks Rank #1 (Strong Buy).
This semiconductor stock carries excellent investment opportunity, given management’s decision to raise the lower end of its second quarter 2013 guidance, solid performance in the first quarter and expected synergies from the acquisition of BCD Semiconductor Manufacturing Ltd. (completed on Mar 5). The stock’s return was 50.0% in the past one year. Diodes’ shares set a new 52-week high of $27.47 on Jul 5.
Why the Upgrade?
The upgrade came on the back of a string of positive events for the company.
On Jun 10, 2013, Diodes revised its second quarter 2013 guidance. Diodes now expects revenues in the range of $210.0-$218.0 million compared with the previous expected range of $206.0-$218.0 million. Also, gross margin is expected to be 28.0% (+/- 2.0%), up from the prior guidance of 27.0% (+/- 2.0%). The revised revenue guidance reflects greater contribution from the integration of BCD Semiconductor. The revised gross margin expectation reflects better utilization and cost savings from in-sourcing of packaging costs for BCD’s products.
On May 9, 2013, Diodes reported solid first quarter 2013 results with earnings per share of 16 cents, which surpassed the Zacks Consensus Estimate by 166.7% and the year-ago level by 77.8%. Revenues grew 22.3% year over year to $177.0 million on continuous design wins and contribution from BCD Semiconductor.
On Mar 5, 2013, Diodes completed the acquisition of BCD Semiconductor, a China-based manufacturer of analog integrated circuits, in a cash deal worth $151.0 million. The acquisition promises cross-selling opportunities, increased penetration into the Chinese market, gross margin expansion by way of reduced packaging costs (BCD’s packaging costs were higher due to outsourcing, which will now be in-sourced by Diodes) and economies of scale.
Estimate Revision
Over the past 30 days, the Zacks Consensus Estimates for 2013 and 2014 increased 3.7% and 5.4%, respectively to $1.12 and $1.76 per share. Notably, 5 and 3 estimates were revised upwards for 2013 and 2014, respectively over the past 30 days.
In the past four quarters, the company posted an average surprise of 76.7%. Considering the above factors, Diodes has the potential to post a positive earnings surprise in the upcoming quarter.
Other Stocks to Consider:
Investors could also consider similar stocks that are doing well right now. These include Advanced Micro Devices Inc. (AMD), Integrated Device Technology Inc. (IDTI) and Omnivision Technologies Inc. (OVTI) all carrying a Zacks Rank #1 (Strong Buy).
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