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) -- Shares of



surged Friday as any already bullish Wall Street applauded the chip maker's quarterly report and outlook.

Nine of 11 analysts covering Microsemi had the equivalent of a strong buy rating on the stock ahead of the Irvine, Calif.-based semiconductor technology company's fiscal fourth-quarter report after Thursday's closing bell, and their optimism was rewarded with a solid beat on both the top and bottom lines, along with a forecast for accelerating sequential revenue growth.

"Next year, we expect meaningful GM

gross margin expansion towards 60% as a richer mix (ACTL

Actel) is bolstered by structural improvements and planned factory closures (Scottsdale)," said Wedbush Morgan, which maintained an outperform rating on the stock but lifted its 12-month price by 40%. "As such, we now conservatively estimate $2.00 in earnings power next year and raise our PT to $28 from $20, derived from a 14x multiple on our CY11E

calendar 2011 estimate EPS."

The stock rose 8.7% to finish at $22.64 on volume of 2.1 million, roughly three times its trailing three-month daily average of around 715,000. The session-high of $22.88 was a new 52-week peak for the shares, which have gained more than 17% so far in 2010. The appreciation has been swift and more pronounced than the year-to-date performance indicates, however. The stock has soared 64% since scraping its 52-week low of $13.83 less than three months ago on Aug. 31.

For its fourth quarter ended Sept. 30, Microsemi posted non-GAAP earnings of $28.8 million, or 35 cents a share, on sales of $151.2 million. The performance topped the average estimate of analysts polled by

Thomson Reuters

for a profit of 34 cents a share on sales of $147.1 million, marking a second-straight quarter of better than expected results for the company.

More heartening though was likely Microsemi's forecast for sequential revenue growth of 19-23% for its fiscal first quarter ending in December, an improvement from the 11% growth it posted from the second to third quarters. That view implies a range of roughly $180 million to $186 million for the current quarter, surrounding Wall Street's current consensus view of $183.6 million. The company also said it expects non-GAAP earnings of 36 to 39 cents a share in the first quarter, again implying potential upside to the average analysts' estimate of 37 cents a share.

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Microsemi said its outlook reflects two months of operations from Actel, which it completed its acquisition of earlier this month.

Even one of the more bearish firms on the stock took away more positives than negatives from the quarter. Jefferies maintained a hold rating on the shares, but boosted its 12-month price target to $20 from $17, a mild concession to the outperformance of both the company and the stock.

"We believe Microsemi is well positioned to deliver steady results due to its stable Defense business where it has leading market share, high barriers to entry, and significant pricing power, as well as a GM

gross margin tailwind, but remain neutral as we believe few catalysts exist to drive shares materially higher," the firm said.

Looking at the price-to-earnings multiple for Microsemi, Jefferies appears to have a point. The stock's trailing P-E ratio currently sits at roughly 85X, much higher than the ratio of competitors such as

Maxim Integrated Products




Texas Instruments


(13X) and

Vishay Intertechnology



On the whole though analysts believe the stock still has room to run with the median 12-month price target sitting at $27.


Written by Michael Baron in New York.

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Michael Baron


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