The Spansion (CODE) and Cypress Semiconductor merger synergies offer substantial further upside, Barclays said.
Analysts see $135 million in synergies expected by both companies, along with opportunity for further savings, namely in fabrication consolidation and sales.
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"Net, net, we believe there is substantial conservatism built into the expected synergies and see the 50% GM/20% OpM target as just a stopping point along the way to improved profitability," analysts said.
Barclays believes there are sizable revenue and cross selling synergies between the two companies that many may not fully appreciate, such as CODE's strong customer base in Japan and the ability to offer customers a full suite of MCU products.
Additionally, Barclays raised its price target on Spansion today to $40 from $30, citing similar synergy benefits.
Shares of Spansion are down 1.76% to $34 in pre-market trading.
Separately, TheStreet Ratings team rates CYPRESS SEMICONDUCTOR CORP as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:
"We rate CYPRESS SEMICONDUCTOR CORP (CY) 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 solid stock price performance, compelling growth in net income and growth in earnings per share. However, as a counter to these strengths, we find that the company has favored debt over equity in the management of its balance sheet."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Compared to its price level of one year ago, CY is up 41.29% to its most recent closing price of 14.61. Looking ahead, our view is that this company's fundamentals should not have much impact in either direction, allowing the stock to generally move up or down based on the push and pull of the broad market.
- The net income growth from the same quarter one year ago has significantly exceeded that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income increased by 245.4% when compared to the same quarter one year prior, rising from -$8.83 million to $12.84 million.
- CYPRESS SEMICONDUCTOR CORP 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, CYPRESS SEMICONDUCTOR CORP reported poor results of -$0.33 versus -$0.16 in the prior year. This year, the market expects an improvement in earnings ($0.53 versus -$0.33).
- 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, CYPRESS SEMICONDUCTOR CORP's return on equity significantly trails that of both the industry average and the S&P 500.
- The debt-to-equity ratio of 1.16 is relatively high when compared with the industry average, suggesting a need for better debt level management. Along with the unfavorable debt-to-equity ratio, CY maintains a poor quick ratio of 0.74, which illustrates the inability to avoid short-term cash problems.
- You can view the full analysis from the report here: CY Ratings Report