Needham & Co.’s Bullish and Bearish Recommendations for Semiconductor Stocks


Analyst Quinn Bolton of Needham & Company released a slew of ratings for the semiconductor industry. Although many are optimistic about the growth of the industry, he is wary of several stocks.

 Bullish

Marvell (NASDAQ: MRVL) produces semiconductor products and provides silicon solutions in the technology sector. This month, the company also announced plans to enter the 3D printing space. Marvell last released earnings on November 20th, where revenue missed estimates of $962 million and was reported at $930 million.

On December 29th, Bolton reiterated a Buy rating on Marvell and raised his price target from $19 to $20. The analyst noted that although Needham is wary of the semiconductor sector, “Marvell has the potential to outperform the broader industry due to what we see as an attractive valuation and an opportunity to become a meaningful player in the LTE baseband market.”

Bolton has rated MRVL three times since May of 2013, at which time he rated the stock a Buy at $10.97. Shares last closed at $14.37 on December 26th. From his first two ratings, Bolton has a 22.8% average return per Marvell recommendation.

 

Bearish

Ambarella (NASDAQ: AMBA) develops high-definition cameras used to broadcast professional sporting events and for security purposes. The company went public in 2012 and now supplies GoPro (NASDAQ: GPRO) with video processing chips. Some analysts are optimistic about Ambarella because the National Highway Traffic Safety Administration mandated that all cars be outfitted with back-up cameras by 2018, creating a huge customer base for the company.

However, Quinn Bolton downgraded Ambarella from Hold to Underperform on December 29th. The analyst noted, “With AMBA shares up 65% YTD in 2014… the company now trades at one of the richest valuations in our coverage universe.” He listed factors that may cause Ambarella to underperform, including: “1) a rapid deceleration in Y/Y revenue growth during the year, 2) management expects gross margin to compress in C2H15, and 3) pricing pressure from its largest customer, GoPro.”

Bolton initiated coverage on AMBA with a Buy rating in November of 2012 when shares were $8.23. He continued to issue Buy ratings as the stock rose to $27.94 in December of 2013.

 

Neutral

Intel Corp. (NASDAQ: INTC) is another key player in the semiconductor industry. The company has been in the news this month with their announcement to partner with Luxottica Group to produce “smart eyewear.” Last month, the company also announced a 6 cent increase to its cash dividend, resulting in 96 cents-per-share annually, to begin in the first quarter of 2015. Intel reported earnings per share of $0.51 for the fourth quarter of this year; an 8% year-over-year increase.

On December 29th, Bolton reiterated a Hold rating on Intel. The analyst explained, “Given our more cautious stance on the semiconductor industry entering 2015 and Intel’s strong performance YTD in 2014, up 45% as compared to 30.3% for the SOX Index and 15.1% for the NASDAQ Composite, we maintain our Hold rating on Intel shares.” Bolton noted three concerns regarding the semiconductor industry: “1) we see revenue/EPS growth decelerating, 2) we believe industry multiples are unlikely to expand further and 3) we believe consensus estimates already reflect strong earnings growth.” He concluded, “We would hold off making new investments in semiconductor stocks in general to see whether the market pulls back in 1H15 and presents a better buying opportunity.”

Bolton has rated Intel 9 times since April of 2010, though he has not been as successful as illustrated by his negative average return rate of -1.2% per Intel recommendation.

Overall, Bolton has a 67% success rate recommending stocks with an average return of +22.9% per recommendation.

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