On Tuesday, CFRA made an adjustment to the price target of Rambus Inc . (NASDAQ: NASDAQ:RMBS) shares, lowering it to $56.00 from the previous target of $65.00 while maintaining a Hold rating on the stock. The revision comes with a new price-to-earnings (P/E) ratio of 23.3 times the firm's 2025 earnings per share (EPS) estimate, aligning it closer to its industry peers.
The adjustment in the price target was accompanied by a slight modification in the EPS estimates for the company, with the 2024 EPS estimate being adjusted to $1.96 from $2.01, while the 2025 EPS estimate remains unchanged at $2.40.
CFRA's decision follows Rambus's recent financial performance, which showed a 10.5% increase in sales, albeit slightly below expectations. The increase was attributed to a rise in product and royalty revenue, which was partially offset by a decline in contract and other revenues.
Rambus reported second-quarter operating income of $55.1 million and net income of $46.1 million, both figures falling modestly short of the consensus estimates of $59 million and $48.4 million, respectively.
Despite these results, CFRA noted positive developments, particularly a 13% sequential increase in the company's memory interface chips, spurred by demand for DDR5 and an improvement in customer inventories, which bolstered overall product revenue.
CFRA expressed optimism about the potential for market expansion in the memory sector, particularly as demand for artificial intelligence servers increases, which they believe will support a more favorable product mix and content growth for Rambus.
The analyst firm highlighted Rambus's stable and recurring royalty business, its rising cash position—$433 million in Q2 compared to $391 million in Q1—and the absence of debt on the company's balance sheet.
Looking ahead, CFRA anticipates growth in free cash flow, projecting an increase to $160 million in 2024 and to $200 million in 2025. This financial improvement is expected to enable Rambus to pursue more aggressive share buybacks in the future.
In other recent news, Rambus Inc. reported a robust second quarter of fiscal year 2024, marked by significant product revenue growth, largely driven by its DDR5 Register Clock Drivers (RCDs).
The company also demonstrated a strong financial position, with $432.9 million in cash and securities. In addition, Rambus repurchased $12.5 million of its own stock and generated $54.1 million in free cash flow.
Recent developments indicate the company's optimistic outlook towards its long-term prospects in the data center and AI markets. Rambus has projected third-quarter revenue to be between $144 million and $150 million, with non-GAAP earnings per share estimated at $0.47 to $0.54. The company is also making strategic investments in new products and technologies for data centers and client devices.
Rambus' confidence in the growth of the data center and AI market is evident, with expectations of continued product revenue growth and market expansion in the third quarter.
Despite last year's decline in contract and other silicon IP revenues due to divestitures, Rambus anticipates a 10% to 15% growth rate in these revenues, adjusted from the previous year. The company is also aligning with platforms like Intel (NASDAQ:INTC)'s Arrow Lake and AMD (NASDAQ:AMD)'s follow-ons, reflecting its agnostic approach to CPU architectures.
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