On Monday, CFRA, a prominent financial research firm, upgraded the price target for Semtech Corp . (NASDAQ: NASDAQ:SMTC (NASDAQ:SMTX)) shares, raising it to $32 from the previous $25. The firm has maintained a "Buy" rating on the stock. The adjustment follows Semtech's recent financial performance, which showed a quarterly loss, but also signs of potential recovery in the coming quarters.
Semtech reported a loss of $0.06 per share for the January quarter, which was a steeper loss than the $0.04 consensus estimate. This compares unfavorably to the $0.47 earnings per share (EPS) recorded in the same period last year.
The company's sales declined by 4% from the October quarter, a result slightly better than what was anticipated by consensus estimates. The sales dip was attributed to decreased consumer and infrastructure revenue, which fell by 15% and 8.6%, respectively. However, this was somewhat mitigated by a 1% growth in the industrial sector.
The company's gross margin also experienced a contraction, coming in at 48.9% compared to 51.3% in the previous quarter and 62.3% a year prior. The decline in gross margin was due to lower volume and an unfavorable mix of products sold. Despite this, CFRA anticipates an improvement starting in the April quarter.
CFRA's analyst noted that Semtech's revenue likely hit its low point in the January quarter, with guidance for the April quarter implying sequential growth of 3.7%. This expectation is based on the company's efforts to rightsize channel inventory and promising prospects in data center demand, particularly for artificial intelligence workloads, which are anticipated to support an improving pipeline.
Looking ahead, CFRA expects a more aggressive rebound in Semtech's revenue in the second half of the year. This forecast is based on industrial orders, which are projected to bounce back despite still being down in the April quarter, and the consumer segment, which is likely to benefit from seasonal factors. The firm has also adjusted its full-year 2025 (January) EPS estimate to $0.65 from the prior $0.99 but has left its full-year 2026 estimate unchanged at $1.52.
InvestingPro Insights
As Semtech Corp. (NASDAQ: SMTC) navigates through its financial recovery, recent data from InvestingPro underscores some key aspects of its stock performance and financial health. With a market capitalization of $1.77 billion and a notable revenue growth of 14.83% in the last twelve months as of Q4 2024, Semtech shows signs of scaling its operations despite recent setbacks. The company's stock has experienced a significant return over the last week, month, and three months, with price total returns of 23.44%, 23.27%, and 25.47% respectively, reflecting a positive investor sentiment in the short term.
InvestingPro Tips indicate that while Semtech operates with a significant debt burden and has been non-profitable over the last twelve months, analysts predict the company will turn profitable this year. Furthermore, Semtech's liquid assets exceed short-term obligations, providing some financial stability. However, the stock is currently trading at a high EBITDA valuation multiple, and the RSI suggests it is in overbought territory, signaling potential caution for investors. For those looking to delve deeper into Semtech's financials and stock performance, there are additional tips available on InvestingPro. Use the exclusive coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, and discover the full range of insights that could guide your investment decisions.
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