Bear of the Day: Silicon Labs (SLAB) - Bear of the Day
09 August 2013 - 12:30PM
Zacks
Estimates have been falling for
Silicon Labs (SLAB) after
the company reported soft second quarter results and provided weak
third quarter guidance. It is a Zacks Rank #5 (Strong Sell) stock.
Despite the negative earnings momentum, shares of
Silicon Labs still trade at a premium valuation. Investors may want
to wait for earnings momentum to turn around before establishing a
long position.
Silicon Labs develops analog-intensive,
mixed-signal integrated circuits used in a wide range of
applications such as set-top boxes, televisions, and cell phones.
The company was founded in 1996 and has a market cap of $1.7
billion.
Soft Q2 Results, Weak Guidance
Silicon Labs reported its second quarter results on
July 25. Adjusted earnings per share came in at 33 cents, missing
the Zacks Consensus Estimate by 3 cents.
Revenues declined 3% from the previous quarter to
$141.5 million, which was also below the consensus at $143.0
million. This decrease was driven by steep declines in some of the
company's legacy products.
Following the soft Q2 results, management guided Q3
EPS significantly below the consensus at the time. This prompted
analysts to revise their estimates significantly lower for both
2013 and 2014, sending the stock to a Zacks Rank #5 (Strong
Sell).
The Zacks Consensus Estimate for 2013 is now $1.46,
down from $1.73 just 30 days ago. The 2014 consensus is currently
$1.65, down from $1.94 over the same period.
You can see the big drop in consensus estimates in
the following chart:
Valuation
Shares of Silicon Labs are down more than -12%
since the Q2 earnings release. Despite this, the stock doesn't look
like a value here. Shares currently trade around 25x 12-month
forward earnings, which is a premium to the industry median 16x.
Its price to cash flow ratio of 19 is also above the industry
median of 14x.
The Bottom Line
With falling earnings estimates and premium
valuation, investors should consider avoiding this Zacks Rank #5
(Strong Sell) stock until its earnings momentum turns around.
Investors still interested in the 'Semiconductor -
Analog & Mixed' industry may want to take a look at
Microchip Technology (MCHP), which carries a Zacks Rank of 1
(Strong Buy) and trades at 19x forward earnings, or Analog
Devices (ADI), which has a Zacks Rank of 2 (Buy) and trades at
20x.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Editor of the Income
Plus Investor service.
ANALOG DEVICES (ADI): Free Stock Analysis Report
MICROCHIP TECH (MCHP): Free Stock Analysis Report
SILICON LAB INC (SLAB): Free Stock Analysis Report
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