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Can Semtech Make Your Portfolio Shine?
Stock Analysis & Ideas

Can Semtech Make Your Portfolio Shine?

Semtech Corp. (SMTC) have shares soared 10.9% since market close Wednesday, after the semiconductor company released impressive second-quarter Fiscal Year 2022 results.

The company also provided an encouraging outlook for Q3, as well as the full fiscal year, which keeps me bullish on the stock. (See Semtech stock charts on TipRanks)

Q2 Results

It was a profitable quarter for Semtech.

Net sales rose 29% year-over-year, to $185 million. Operating income came in at $36,660, a 95.5% increase from Q2 2021.

GAAP gross margin grew 90 basis points quarter-over-quarter to 62.4%, while non-GAAP gross margin grew 70 basis points to 62.6%. Management indicated that it expects to be able to continue expanding gross margins in the forthcoming quarters.

As well, supply chain constraints are easing across the company’s North American and Korean operations, which is a positive.

Buoyed by the earnings results and the bullish outlook, Needham analyst Quinn Bolton reiterated a Buy rating on the stock, while increasing the price target to $88 from $86.

Semtech’s low power, high-range (LoRa) business was a significant contributor to the quarterly performance. The outbreak of the pandemic had led some LoRa customers to postpone new product launches. Despite this setback, the company LoRa business had managed to grow 19% year-over-year in fiscal 2021.

This encouraged Bolton, who said, “We believe Semtech’s LoRa business will see share gains and revenue growth as an increasing number of industrial, smart home, and consumer devices adopt this long-range IoT connectivity standard, particularly with the recent launch of Amazon’s LoRa enabled products, which started in late FY21.”

Bolton also noted that revenues from Signal Integrity should be able to hit a new record high, driven by growth across all end-market segments.

Bolton concluded his thesis by saying that he believes Semtech’s Signal Integrity business to be well placed for strong growth over the next few years, as 5G, Passive Optical Networks, and data center end markets continue to expand.

The rest of Wall Street seems to be equally optimistic about Semtech, as reflected in its Strong Buy consensus rating, based on six Buys and one Hold. The average Semtech price target of $85.14 indicates upside potential of 8.2% from current levels.

To find good ideas for stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a tool that unites all of TipRanks’ equity insights.

Disclosure: At the time of publication, Chandrima Sanyal did not have a position in any of the securities mentioned in this article

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