On Mar 31, 2016, Zacks Investment Research upgraded QLogic Corp QLGC to a Zacks Rank #1 (Strong Buy). Going by the Zacks model, companies holding a Zacks Rank #1 have strong chances of outperforming the broader market over the next few quarters.
Why the Upgrade?
QLogic holds a leading position in the Ethernet market due to its strong product portfolio. In 2015, the company had double-digit lead in terms of market share over its peers. Furthermore, the company continues to upgrade its existing product portfolio as well as launch new products. QLogic has already expanded to 10Gb and 25Gb Ethernet adapters and is now gaining traction in its 100Gb Ethernet offerings.
Also, the company’s strategic relationships with large OEMs such as Cisco, Dell, EMC, Hewlett-Packard, NetApp, Oracle ORCL and International Business Machines IBM are big positives. The company mainly derives its revenues and related income from OEM agreements with two of its important customers, IBM and Hewlett Packard. The company also has a cloud computing partnership with Intel, which makes it a major player in the converged infrastructure market.
Moreover, Qlogic’s non-exclusive patent license agreement with Broadcom covers all of its Fibre Channel products. The two entities are together developing end-to-end 25Gb and 100Gb Ethernet solutions. A month back, the company started production shipments of First Gen 6 (32Gb) Fibre Channel Adapters.
QLogic’s strong balance sheet is another big positive. The company had a sizeable cash balance (including cash & cash equivalents and short-term investments) of $299.5 million and no long-term debt as on Dec 27, 2015. We believe that the strong balance sheet will support investments as well as shareholder returns in the long run.
The company’s strong fundamentals have helped it to post positive earnings surprises in the trailing four quarters at an average of 30.81%. For the third quarter of fiscal 2016, Qlogic reported better-than-expected numbers for both earnings and revenues, following which earnings estimates for 2016 were revised upwards. Over the last 90 days, estimates for fiscal 2016 have gone up 11.9% and for fiscal 2017, it is up 4.1%.
Another Stock to Consider
A stock worth consideration in the technology sector is Etsy, Inc. ETSY which also sports a Zacks Rank #1.
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