Entropic Shares Keep Moving Higher

Shares of Entropic Communications jumped Monday after the company gave a substantial lift to its outlook for the third quarter.
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NEW YORK (

TheStreet

) -- Shares of

Entropic Communications

(ENTR) - Get Report

saw a nice boost on Monday after the San Diego-based semiconductor maker lifted its third-quarter outlook.

The company, whose chips are used in home networking and direct satellite broadcast systems, said it now expects non-GAAP earnings of 16 to 18 cents a share on revenue of between $60 million and $61 million.

The current average estimate of analysts polled by

Thomson Reuters

is for earnings of 13 cents a share on revenue of around $52 million for the three months ending Sept. 30. Entropic previously forecast revenue of $51 million to $53 million for the quarter.

On a GAAP basis, the company sees a profit of 13 to 14 cents a share in the period, and it noted that it expects to see higher variable compensation costs in the third quarter because of the improved outlook. Entropic said it's seeing increased demand as the top pay-television service providers continue to launch new products, but also attributed the higher outlook to its own execution and that of its supply chain partners.

The stock was flying high in afternoon action, gaining 6% to $9.12, although it had pulled back after hitting a new 52-week high of $9.91 earlier in the session. Volume of 4.7 million was more than double the issue's trailing three-month daily average of 1.7 million. Year-to-date, the shares have appreciated almost 200%, and have now blown through respective 50-day and 200-day moving averages of $7.64 and $5.83.

Entropic's performance has supported the stock's rise. The company has grown revenue on a sequential basis for five straight quarters, and been profitable for more than a year now, beating consensus quarterly earnings expectations by an average of 38% over that time period.

And despite the stock's run-up, Wall Street remains overwhelmingly bullish with 13 of the 14 analysts covering the company at either buy (8) or strong buy (5). Their median 12-month price target of $10, however, looks a little low in light of the recent surge in the shares.

Through Friday's close at $8.60, the stock was trading with a forward price-to-earnings multiple of a little more than 15X based on the average analyst estimate for fiscal 2011's profit. Its trailing P/E multiple of almost 143X is much richer, of course.

Signal Hill Group reiterated its buy rating on the news, saying it thinks the stock's move has been "more than justified" by the company's performance.

"Stock remains attractively valued, in our opinion, given what we believe are outsized market and Y/Y

year-over-year growth opportunities for 2010 and 2011," the firm said in a note to clients.

Signal Hill lifted its earnings and revenue expectations through fiscal 2011 in the wake of the outlook, but said even these higher estimate could prove conservative.

"The second growth phase has now accelerated dramatically, with almost 50% sequential growth in Q3," it said. "Service providers such as

Comcast

(CMCSA) - Get Report

,

Time Warner

(TWX)

,

Cox

,

DirecTV

(DTV)

,

Verizon

(VZ) - Get Report

and multiple Tier-2 customers are deploying MoCA

Multimedia over Coax Alliance-enabled solutions, which could reach a 40 million units per year opportunity over the next year or two."

The company's competitors include names like

Broadcom

(BRCM)

and

LSI Logic

(LSI) - Get Report

, both of whom are much bigger from a market-cap standpoint, and are much more diversified in terms of what kinds of chips they produce.

Entropic said it expects to release its third-quarter results during the last week of October.

--

Written by Michael Baron in New York.

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Michael Baron

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