Shares of Altera Corporation ALTR attained a new 52-week high of $53.33 on Dec 4, 2015 and eventually closed at $53.20. The stock represented a year-to-date return of 44%. The average trading volume for the last three months aggregated approximately 2,699K.
Some of the optimism regarding the stock can be attributed to growth in 3G and 4G /LTE deployments, in particular, which will increase the demand for FPGAs.This in turn, will be beneficial for Altera. Additionally, the company’s transition to 14-nanometer (nm) FPGAs in association with Intel Corp. INTC is likely to be a competitive differentiator.
The company has been witnessing growth at its 28-nm products which, it believes, will remain a key growth driver over the long run. We believe that the deployment will strengthen its product portfolio and offer more comprehensive and high-value programmable solutions.
It should be noted that Altera being a fabless company does not have or operate foundries for the production of silicon. Instead, it works with independent merchant foundries and chip assemblers for the manufacture of products. This benefits the company with superior manufacturing capability, scalability, as well as flexibility to move wafer manufacture, assembly and test of products to vendors that offer superior technology and services at competitive prices. It also frees up resources for research and development (R&D) activity that would otherwise have been locked up in capital assets.
Moreover, the company has a consistent record of returning cash to shareholders through share repurchase and dividend payouts. During 2014, Altera returned approximately $204.6 million to shareholders as quarterly dividends and $654.5 million through share repurchases which, taken together, translates to approximately 130% of operating cash flow, well above its target of 68%. In the first three quarters of 2015, Altera repurchased shares worth $57.5 million and paid dividend of $162.9 million.
Further, Altera has been consistently paying quarterly cash dividend since 2007 and has even increased it every year at a compounded annual growth rate of nearly 24%, which is an added incentive for income-seeking investors.
However, macroeconomic weakness, competition from Xilinx Inc. XLNX and Lattice Semiconductor Corporation LSCC; consolidation in the telecom market, declining margins and volatility in the semiconductor market are concerns.
Currently, Altera carries a Zacks Rank #3 (Hold).
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