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Smith Barney Ups Targets on Four Chip Names

Texas Instruments, Analog Devices, Cypress and International Rectifier are mentioned.
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The opportunity for semiconductor companies to leverage sales and margin expansion at this point of the cycle is "far greater than any analyst is willing to put into print," Smith Barney said in a research note Friday. The brokerage raised its price target on a handful of names that it conceded already have a lot of high expectations in their valuations.

The brokerage upped its price target on

Texas Instruments

(TXN) - Get Report

to $25 from $17; raised it on

Cypress Semiconductor

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to $21 from $16; raised it on

Analog Devices

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to $44 from $35; and raised it on

International Rectifier

TST Recommends

(IRF)

to $44 from $27.

The brokerage, which also raised earnings and sales estimates on those names, noted that "high stock valuations remain a major challenge currently," but said the targets reflect new modeling that incorporates fresh 2005 estimates. Smith Barney remains underweight the semiconductor sector.

While standard valuations are indeed high, semiconductor investors can occasionally look past them at this point in a cycle, the brokerage said.

"In our view, investors are ignoring current chip stock valuations because past cycles have shown that sales and margin for chip companies during an upcycle is far greater than any analyst is comfortable putting into print," it wrote. Among other reasons, the four companies were selected because of their long operating histories and because "product themes" make a longer view feasible.

Smith Barney noted that

Intel

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remains its favorite semiconductor stock because of the potential for margin leverage, and noted that

Broadcom

probably has room for further earnings upside.