Xilinx, Inc. (XLNX) Upgraded to ‘Buy’ by Goldman Sachs on Expectation of Continued Market Share Gains

Xilinx, Inc. (NASDAQ:XLNX) the provider of programmable logic devices, saw a 2.15% increase in its stock price after Goldman Sachs updated the company’s rating to ‘Buy’ from Neutral. According to analyst James Covello, the comms infrastructure is set to witness an inflection, leading to continued market share gains.

Covello said, “Our bullish view is based on the following:

1) Semi shipments into the comms market (40% of sales) are undershipping normalized demand by 25-30%, with Xilinx stating at recent investor events that its wireless sales within comms are at a 7-year low.

2) We expect market share gains to continue over the medium term as the 28nm node continues to grow as a percentage of the industry.

3) Aerospace and Defense revenue (10- 15% of total sales) should transition from a headwind in CY2015 to a tailwind in CY2016 based on the timing of government programs.”

Covello expects a recovery in comms infrastructure revenue, given the low base of the previous year. While there’s no clarity on when the recovery will be seen and how much, he said the undershipping is an indication of lean supply, and whenever there have been undershipments over 10% in the past, the following year has seen an average revenue recovery of more than 30%. He also noted the reduction in inventory dollars in the comms supply chain. According to Covello, these are early indications of development. Some of the factors contributing to Covello’s optimism are China Telecom, China Mobile, and the growth of LTE in India.

Covello has set a price target of $50 for the company’s stock, around 17% higher than Monday’s closing price of $42.83.

Overall, Covello has a 56% success rate recommending stocks and a +4.7% average return per recommendation when measured over a one-year horizon and no benchmark.

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