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What's Behind Rambus' (RMBS) Gains on Tuesday?

Stocks in this article: MURMBS

NEW YORK (TheStreet) -- Rambus (RMBS) soared Tuesday after it ended a 13-year dispute with semiconductor company Micron Technology (MU).

The company, which develops RAM memory chips, rose 17% to $9.98 by early afternoon, while Micron Technology climbed 0.7% to $23.28.

As part of the settlement, Micron will be required to pay Rambus $280 million over seven years as license to use the its patents in certain products. After the initial term, a continuous license fee will apply to certain products using Rambus patents. All additional litigation has been dropped.

"This milestone agreement puts years of legal disputes behind both companies and opens doors for future cooperation," said Rambus CEO Ron Black in a statement.

In June, Rambus settled a suit with SK Hynix for $240 million and signed a license agreement with STMicroelectronics (STM), as it seeks to close out lengthy court battles to focus on its core chipmaking business.

TheStreet Ratings team rates Rambus Inc as a Hold with a ratings score of C-. The team has this to say about its recommendation:

"We rate Rambus Inc (RMBS) a HOLD. The primary factors that have impacted our rating are mixed -- some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its revenue growth, solid stock price performance and compelling growth in net income. However, as a counter to these strengths, we find that the company's return on equity has been disappointing."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • The revenue growth greatly exceeded the industry average of 9.9%. Since the same quarter one year prior, revenues rose by 27.4%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • Powered by its strong earnings growth of 90.38% and other important driving factors, this stock has surged by 77.59% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the stock's future course, our hold rating indicates that we do not recommend additional investment in this stock despite its gains in the past year.
  • Rambus Inc reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, Rambus Inc reported poor results of -$1.20 a share vs. -40 cents a share in the prior year. This year, the market expects an improvement in earnings (-23 cents vs. -$1.20).
  • RMBS's debt-to-equity ratio of 0.90 is somewhat low overall, but it is high when compared to the industry average, implying that the management of the debt levels should be evaluated further. Despite the fact that RMBS's debt-to-equity ratio is mixed in its results, the company's quick ratio of 1.80 is high and demonstrates strong liquidity.
  • The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, Rambus Inc's return on equity significantly trails that of both the industry average and the S&P 500.

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