Why InvenSense (INVN) Is Gaining Today

NEW YORK (TheStreet) -- InvenSense (INVN) was gaining 9.6% to $21.46 Tuesday following the news of a patent settlement with MEMS rival STMicroelectronics (STM).

STMicroelectronics was gaining 0.8% to $8.41.

The settlement puts an end to long-running patent disputes between the two companies and sees the rivals entering a cross-licensing agreement. The terms of the deal are confidential, but neither InvenSense nor STMicroelectronics will make "any admission of liability."

Following the announcement of the patent settlement analyst firm Robert W. Baird raised its price target for InvenSense to $23 from $20.

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TheStreet Ratings team rates INVENSENSE INC as a "hold" with a ratings score of C+. TheStreet Ratings Team has this to say about their recommendation:

"We rate INVENSENSE INC (INVN) 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, largely solid financial position with reasonable debt levels by most measures and expanding profit margins. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and premium valuation."

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

  • INVN's revenue growth has slightly outpaced the industry average of 4.9%. Since the same quarter one year prior, revenues rose by 13.2%. 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.
  • Despite currently having a low debt-to-equity ratio of 0.42, it is higher than that of the industry average, inferring that management of debt levels may need to be evaluated further. Even though the debt-to-equity ratio shows mixed results, the company's quick ratio of 4.90 is very high and demonstrates very strong liquidity.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. When compared to other companies in the Electronic Equipment, Instruments & Components industry and the overall market, INVENSENSE INC's return on equity is below that of both the industry average and the S&P 500.

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