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. The firm has long-term cross-licensing agreements with International Business Machines Corp. (NYSE: IBM) and Intel Corporation (NASDAQ: INTC).
The company surprised the Street last month, when it reported third quarter (Q3) earnings per share (EPS) of 53 cents and revenues of $104.7 million. Analysts
had been looking for 53 cents and $100.2 million. Management also guided Q4 EPS to 46-49 cents (48 cent consensus) and Q4 revenues to $94-$97 million ($95.60M consensus). Needham subsequently upgraded the stock to "strong buy" and declared a price target of $46. SMSC shares popped on the news and then moved into a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Brokers recommend the issue with three "strong buys" and two "buys". Analysts expect a 23% growth rate, through the next year. The SMSC Price to Sales ratio (2.40), Price to Book ratio (2.09), Price to Free Cash Flow ratio (17.89) and EPS Growth rate (32.50%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 95 percent 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 $26.95 and $39.95. A stop-loss of $32.60 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in any of the stocks mentioned above.
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