Our expert for today, Quinn Bolton, is the Managing Director of Equity Research at Needham & Co. with expertise in covering U.S.-based communications integrated circuits (ICs) and consumer semiconductor companies.
Based on his analysis of a “slowdown in demand across most end markets coupled with several quarters of inventory purge,” Bolton believes that semiconductor sales are going to peak in Q2 of this year, with inventory levels expected to peak in Q2/Q3 of 2022.
As a result, the period between 4Q of 2022 and 2Q of 2024 will witness an inventory purge as “semiconductor sales will trend below natural consumption.”
So what’s the good news? This period of lull will be followed by two years of boom, marking double-digit revenue growth. Based on this thesis, Bolton has lowered the revenue and earnings estimates and price targets of most companies in his coverage.
Analog Devices (NASDAQ: ADI)
Analog Devices is an American multinational semiconductor company specializing in data conversion, signal processing, and power management technology. The company manufactures analog, mixed-signal, and digital signal processing integrated circuits (ICs) used in electronic equipment.
ADI stock has lost 14.5% so far this year. ADI, led by the inflated demand for chips amid the dire supply chain constraints during the pandemic, consistently outperformed earnings expectations. It is scheduled to report its Q3FY22 results on August 17, with consensus earnings per share (EPS) pegged at $2.43.
Despite his bullish stance on ADI stock, Bolton has drastically cut the price target to $170 (13.4% upside potential) from $205. Meanwhile, the analyst has also lowered the EPS estimate for 2022 to $8.96 from $9.20.
The Street has a Strong Buy rating consensus on ADI stock based on six Buys and two Holds. The average Analog Devices price forecast of $194.13 implies 29.5% upside potential to current levels.
Bolton initiated coverage of ADI Stock in June 2021 and has since maintained his optimistic view. However, the analyst has generated a poor success rate of 13% on the stock, with an average loss per stock of 7.6%.
Monolithic Power Systems (NASDAQ: MPWR)
Monolithic Power Systems provide power circuits for systems found in cloud computing, telecom infrastructures, automotives, industrial applications, and consumer applications. MPWR stock has lost 19.8% so far this year.
Notably, MPWR has surpassed expectations for the past several quarters and is slated to report its Q2FY22 earnings on July 27. The consensus earnings estimate is pegged at $2.94 per share.
With seven unanimous Buys, MPWR commands a Strong Buy consensus rating. The average Monolithic Power price forecast of $552.57 implies 39.7% upside potential to current levels.
Bolton had a Hold rating on MPWR stock between the periods of May 2019 and February 2020. However, before and after the aforementioned period, he has consistently recommended a Buy rating. The analyst has modestly reduced the price target on the stock to $500 (26.4% upside potential) from $530 while also lowering the 2022 earnings per share (EPS) forecast to $10.73 from $11.22.
Notably, Bolton enjoys a success rate of 89% on MPWR stock while generating an average profit per share of 38%.
Marvell Technology (NASDAQ: MRVL)
Marvell Technology designs, develops, and markets analog, mixed, and digital signal processing products and embedded and standalone ICs. Although the company has constantly exceeded expectations, the stock has lost 47.3% year to date.
Marvell is scheduled to report its Q2FY23 earnings on August 25, with a consensus earnings estimate of $0.57 per share. Bolton has slashed the price target on MRVL stock to $66 (40.5% upside potential) from $75 while maintaining a Buy rating. And he has also lowered the FY23 EPS estimate to $2.25 from $2.33.
Based on 16 Buys and two Holds, MRVL stock has a Strong Buy consensus rating. The average Marvell Technology price target of $82.28 implies a whopping 75.1% upside potential.
Bolton enjoys an impressive 37.7% average return per stock on his multiple calls on MRVL stock with a 79% success rate.
Semtech Corporation (NASDAQ: SMTC)
Semtech is a supplier of analog and mixed-signal semiconductors and advanced algorithms for consumer, enterprise computing, communications, and industrial end-markets. SMTC stock has lost 40.8% year-to-date, despite constantly outpacing Wall Street’s earnings expectations.
SMTC is slated to release its Q2FY23 results on August 31, and the consensus for earnings stands at $0.85 per share. Bolton has significantly cut the price target on the stock to $58 (8.9% upside potential) from $75 while also lowering the FY23 EPS forecast to $3.08 from $3.35.
With eight Buys and two Holds, SMTC stock has a Strong Buy consensus rating. The average Semtech price forecast of $82.60 implies 55.1% upside potential to current levels.
Bolton has given consistent Buy recommendations on SMTC stock since May 2020. He enjoys a success rate of 62% on his calls on SMTC with an average return per stock of 11.8%.
Ending Thoughts
According to the TipRanks Star Ranking system, Bolton ranks #2 out of the 7,924 analysts in its universe, and #6 among the 20,710 experts tracked overall. Remarkably, Bolton has had a success rate of 66% with an average return of an impressive 41.5% over the past year. Moreover, his calls have generated an alpha of 29% and 23.7% over the S&P 500 (SPX) and the benchmark, respectively, during the same period. Looking at his impressive and immersive track record, investors may choose to follow the expert’s investment choices.
