Shares of InvenSense Inc. (INVN) reached a new 52-week high of $16.44 on Jul 15, 2013. InvenSense shares gained momentum since it announced fourth quarter 2013 results on May 2. Apart from this, a solid deal pipeline, new product launches, a new distribution partnership with electronics components distributor Digi-Key Corp. and chances of Apple Inc. (AAPL) becoming a potential client boosted the stock’s upside.
The closing price of this motion-sensing technology provider on Jul 15, 2013 was $16.21, representing a stellar 1-year return of about 60.2% and a year-to-date return of about 35.9%. Average volume of shares traded over the last three months stands at approximately 2,187K.
This Zacks Rank #2 (Buy) company has a market cap of $1.38 billion and a long-term expected earnings growth rate of 23.8% (higher than industry average of 16.1%).
Growth Drivers
During the last quarter, InvenSense reported earnings per share of 13 cents, up 85.7% from 7 cents reported in the year-ago quarter. The improvement was mostly driven by 66.9% growth in the quarter’s revenues, which was supported by higher demand for smartphones and tablets.
With technological advancements, demand for smartphones, tablets, console and portable video gaming devices, digital still and video cameras, smart televisions, 3D mice, and navigation devices are growing exponentially. InvenSense’s chips target all these categories of electronic gadgets and hence we believe that its product demand would also experience a ramp. Notably, the company introduced 6 industrial motion-tracking solutions, which will help it to penetrate into new areas such as navigation, platform stabilization, robotics, power tools and agricultural machinery.
Moreover, the distribution agreement with Digi-Key Corp. will allow InvenSense to expand its products’ geographic reach and boost the availability of its products.
We believe that InvenSense’s growth prospects will mostly depend on its business tie with the tech giant Apple. Apple is reportedly using InvenSense’s 3-axis gyros (motion-sensing solution) for its next lineup of iPhone. Gaining share in Apple (a major portion of motion-sensing solutions come from STMicroelectronics) would secure InvenSense’s revenue streams, going forward.
Estimate Revision
The Zacks Consensus Estimate for 2013 and 2014 rose 2 cents each to 66 cents and 84 cents earnings per share, respectively, in the past 60 days. One estimate each was revised upward in the last 60 days for fiscal 2013 and 2014.
Conclusion
InvenSense is expected to release its first quarter 2014 results on Jul 30. Our proven model shows that the company is likely to beat earnings because it has the right combination of two key ingredients.
Positive Zacks ESP: Expected Surprise Prediction or ESP (Read: Zacks Earnings ESP: A Better Method), which represents the difference between the Most Accurate estimate and the Zacks Consensus Estimate, is at +16.7%. This is very meaningful and a leading indicator of a likely positive earnings surprise for shares.
Zacks Rank #2 (Buy): Note that stocks with Zacks Ranks of #1, #2 and #3 have a significantly higher chance of beating earnings.
The combination of InvenSense’ Zacks Rank # 2 (Buy) and +16.7% ESP makes us very confident in looking for a positive earnings beat on Jul 30.
Other Stocks to Consider
Other stocks in the technology industry that are currently performing well and have a solid visibility include Rambus Inc. (RMBS) and SanDisk Corp. (SNDK), both with a Zacks Rank #1 (Strong Buy).
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