In a research note published August 7, Feltl and Company analyst Jeffrey Schreiner reaffirmed a Hold rating on Atmel Corporation (ATML) with a $7.75 price target, this comes on the heels of the company’s second-quarter results. ATML reported second-quarter revenue of ~$355.5m, up ~5% sequentially and ~2% y-y, roughly in-line with forecasts of ~$356m. Strength in industrial end markets, which leads to strong 8-bit MCU contribution, double-digit sequential growth in MaxTouch, and strength in non-volatile memory were key drivers. Non-GAAP GM was in-line at ~45%, which equaled ~280bps higher than prior year results. 2Q Non-GAAP EPS of ~$0.09 was in-line with estimates. In addition to the quarterly report ATML guided 3Q revenue to a range of ~$364-382m, versus consensus ~$379m.
Schreiner wrote, “Following ATML’s 3Q guidance we believe touch markets remain a near-term challenge, while growth within leading end market industrial may be seeing a slower pace of future growth. While positive we believe transition of touch business to industrial/auto will likely take several quarters, with meaningful opportunities in IoT are more than likely 12-24 months out. ATML will also become a full taxpayer in CY16, which could create future EPS headwinds. We recommend investors remain on the sidelines until near-term growth headwinds are addressed, and longer-term opportunities are more in focus.”
Schreiner continued, “We believe ATML’s growth prospects over the next 12 months could be supported by an improving industrial end market, opportunities in non-smartphone/tablet touch (industrial/automotive), and growth opportunities in core MCU. However while we see opportunities for growth, we believe current valuation may already reflect the majority of potential future growth prospects. Based on Feltl and Company’s CY15 estimates, ATML shares are currently trading at ~16.5x our non-GAAP EPS ~$0.52. ATML’s touch IC/analog/MCU peers currently trade near average of ~14.8x forward estimates (incl. CY). Following ATML’s comments during its 2Q14 earnings call, which seemed to downplay future opportunities in smartphone/tablets, we no longer view SYNA as a comp for ATML. We believe ATML is transitioning back towards its core MCU focus, and is shifting its touch business towards industrial/automotive opportunities. In our opinion, ATML shares should trade roughly in-line with current comp fwd multiple. We have changed our prior view that ATML should trade at a discount as ATML continues to demonstrate margin expansion, both non-GAAP GM/EBIT/Net margin, even though it is lower than the average top line growth profile of current comps. The removal of SYNA as a comp also reduces projected comp revenue/EPS growth. On average ATML comps (incl. CY) imply year-year revenue growth in CY15 ~8%, whereas Feltl and Company’s CY15 estimates suggest ATML revenues will grow ~6% year-year, including contribution from recent NMI acquisition. Current comps imply ~20% average CY15 non-GAAP EPS growth compared with Feltl and Company’s ATML estimate ~27%. Given projected CY15 non-GAAP EPS growth rates are expected to outpace comps, while revenue forecasts slightly lag, we believe trading roughly in-line with comp multiples is sustainable.”
According to TipRanks.com, which measures analysts’ and bloggers’ success rate based on how their calls perform, analyst Jeffrey Schreiner has a total average return of -2.2% and a 44.4% success rate. Schreiner has a 21.9% average return when recommending ATML, and is ranked #2809 out of 3214 analysts.
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