NEW YORK (TheStreet) -- RBC Capital Markets initiated coverage of NVIDIA Corp. (NVDA) - Get NVIDIA Corporation Report with a "sector perform" rating and a price target of $23 this morning.

NVIDIA is a technology company that makes graphics processing units. The company works in gaming and also creates chips for mobile devices. NVIDIA also works with researchers at Tesla Motors (TSLA) - Get Tesla Inc Report.

RBC chose to initiate coverage in part because the company's revenue is shifting away from OEM and into auto, gaming and cloud.

RBC believes NVIDIA's capital allocation program is healthy. The firm says that IP royalty payments will act as a drag with earnings tied to an Intel (INTC) - Get Intel Corporation (INTC) Report agreement set to expire in the first quarter of 2018. The firm also says that PC declines are likely to offset growth segments in the near term.

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Shares of NVIDIA were up 0.27% to $22.69 in late afternoon trading on Friday.

Separately, TheStreet Ratings team rates NVIDIA CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

"We rate NVIDIA CORP (NVDA) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, solid stock price performance and expanding profit margins. We feel its strengths outweigh the fact that the company has had sub par growth in net income."

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

  • The revenue growth came in higher than the industry average of 10.5%. Since the same quarter one year prior, revenues slightly increased by 4.5%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • The current debt-to-equity ratio, 0.34, is low and is below the industry average, implying that there has been successful management of debt levels. Along with this, the company maintains a quick ratio of 5.36, which clearly demonstrates the ability to cover short-term cash needs.
  • Net operating cash flow has significantly increased by 69.29% to $163.00 million when compared to the same quarter last year. In addition, NVIDIA CORP has also vastly surpassed the industry average cash flow growth rate of -42.41%.
  • Looking at where the stock is today compared to one year ago, we find that it is not only higher, but it has also clearly outperformed the rise in the S&P 500 over the same period, despite the company's weak earnings results. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • The gross profit margin for NVIDIA CORP is rather high; currently it is at 60.45%. Regardless of NVDA's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, NVDA's net profit margin of 2.25% is significantly lower than the industry average.
  • You can view the full analysis from the report here: NVDA Ratings Report