Strong Buy on Pericom Semiconductor - Analyst Blog

By Zacks | July 01, 2013 AAA

On Jun 29, Zacks Investment Research upgraded Pericom Semiconductor Corp. (PSEM) to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

This semiconductor company delivered positive earnings surprises in three of the last 4 quarters with an average beat of 91.67%. Pericom’s total revenue of $30.4 million in the third quarter fiscal 2013 surpassed the Zacks Consensus Estimate by 4.3%.

The strategic initiatives undertaken by management has allowed the company to expand its gross margin. The present focus on infrastructure like networking and telecom, server, storage and embedded application has allowed Pericom to register gross margin in excess of 37% in the last four reporting quarters. This strategy is expected to increase the gross margin to 40% in the long run.

In the highly competitive semiconductor sector, product innovation is essential to stay ahead of the competition. Pericom has been investing in research & development activities on a continuous basis. These investments have yielded positive results with the company launching 17 new products during the third quarter fiscal 2013.

Pericom with its strong cash balance repurchased shares worth $4.3 million in the third quarter of fiscal 2013. On Apr 26, 2012, the board of directors had authorized a repurchase program of up to $25 million of shares. The company still has $19.6 million under that authorization. Pericom can exercise its right to repurchase more shares thereby boosting shareholder value.

The Zacks Consensus Estimate for 2013 increased 83.3% in the last 60 days to $2.65 per share as all estimates were revised higher. The long-term earnings growth of the company is presently pegged at 20.0%.

Other Stocks to Consider

Besides Pericom Semiconductor other operators in the industry with a favorable Zacks Rank are Integrated Device Technology, Inc. (IDTI), Rambus Inc. (RMBS) and ChipMOS TECHNOLOGIES (Bermuda) LTD. (IMOS) All these companies presently carry a Zacks Rank #1 (Strong Buy).

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