The continuing challenge of the integrated circuit maker is to keep its products affordable while supporting a constantly evolving set of industry standards. There is a firm in Hauppauge, New York with a reputation for reliability on both sides of that equation.
Standard Microsystems Corporation (NASDAQ: SMSC) is engaged in the design and sale of integrated circuits that incorporate digital or analog signal processing technologies. The company offers flash memory card readers, physical layer transceivers, Ethernet controllers, network multimedia co-processors, as well as communications products for wireless base stations, copiers, building automation, robotics, gaming machines, and industrial applications. Customers include Alcatel-Lucent (NYSE: ALU), DaimlerChrysler (NYSE: DCX), Dell (NASDAQ: DELL), Hewlett-Packard (NYSE: HPQ) and Sony (NYSE: SNE). Standard Microsystems has long-term cross-licensing agreements with IBM (NYSE: IBM) and Intel (NASDAQ: INTC).
The company surprised the Street last week, when it reported Q1 EPS of 29 cents and revenues of $81.5 million. Analysts had been expecting 25 cents and $81.0 million. Management also guided Q2 EPS to 37-40 cents (39 cent consensus) and Q2 revenues to $88-$90 million ($89.93 million consensus).
The stock popped into a bullish "pennant" consolidation pattern on the news. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Brokers recommend the issue with three "strong buys" and one "buy." Analysts expect a 30% growth rate, through the next year. The SMSC Price to Sales ratio (2.30), Price to Book ratio (2.07) and Price to Free Cash Flow ratio (33.37) compare favorably with industry, sector and S&P 500 averages.
Institutional investors hold about 90% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past 52 weeks, it has traded between $24.32 and $36.45. A stop-loss of $31.60 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
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