TriQuint Cut on Valuation Concerns

The rally in TriQuint Semiconductor shares in the past few months prompted a downgrade in the stock on Monday, even as the analyst lifted profit estimates on the chip maker.
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NEW YORK (

TheStreet

) -- The rally in shares of

TriQuint Semiconductor

(TQNT)

in the past few months prompted a downgrade in the stock on Monday, even as the analyst tweaked higher earnings estimates on the communications chip maker.

Needham's N. Quinn Bolton went to hold from buy on the shares, saying it's still bullish but the risk/reward profile is "more balanced" than it was when the firm initiated coverage this summer.

"We believe order rates for TQNT remain strong in the near-term as OEMs

original equipment manufacturers prepare for the holiday selling season and are modestly raising our estimates to reflect this strength ," Bolton said in a research note. "However, with TQNT shares up 62% since the end of June and effectively at our $10 price target, we believe the company's strong fundamentals are now reflected in the share price and worry about a 'sell the news' effect once 3Q10 results and 4Q10 guidance are announced."

The shares fell 7.2% to close at $9.09 following the downgrade with volume of around 10 million running more than double the issue's trailing three-month daily average of 3.7 million. Year-to-date, however, the stock is still up more than 60%. It hit a 52-week high of $9.85 this past Friday. The majority of the run-up has occurred since the stock last closed below $7 with Sept. 10's finish at $6.98. The

Nasdaq Composite

is up 12% since the start of July.

Needham, which makes a market in TriQuint, made a similar call on

RF Micro Devices

(RFMD)

on Monday, noting that stock had run up 57% since coverage was initiated on June 30. Shares of RF Micro had a more muted reaction, however, losing just 6 cents to $6.39. Needham's price target on RF Micro's stock is $6.50.

Of TriQuint, Bolton added that upside for the fourth quarter could be limited by capacity constraints and that the smartphone craze headed into the holiday season could create a saturation scenario.

"

With all smartphone OEM vendors building aggressively for the holiday season, we believe risk has increased that some OEMs will exit the season with product still on store shelves, which could impact order rates in 1Q10," he wrote.

Hillsboro, Ore.-based TriQuint is slated to report its third-quarter results on Oct. 27. The current average estimate of analysts polled by

Thomson Reuters

is for a profit of 20 cents a share in the September period on revenue of $221.2 million. Needham's estimate for the period was moved up to earnings of 21 cents a share on revenue of $225 million.

For the fourth quarter, Needham is now looking for a profit of 23 cents a share on revenue of $235 million, up from a prior view for earnings of 22 cents a share on revenue of $230 million. The firm bumped up its projection for fiscal 2011 to earnings of 85 cents a share on revenue of $980 million from a previous estimate for a profit of 75 cents a share on revenue of $940 million.

TriQuint has grown revenue on a sequential basis in each of the past seven quarters, and come in ahead of Wall Street's consensus profit view in six of those quarters.

On a forward price-to-earnings multiple basis, TriQuint compared favorably to most of its competition. The stock was trading at 11X the consensus 2011 earnings estimate ahead of Needham's call, compared to 9.3X from RF Micro, 22.4X for

Anadigics

(ANAD)

and 13.3X for

Skyworks Solutions

(SWKS) - Get Report

.

Needham makes a market in both RF Micro and TriQuint.

--

Written by Michael Baron in New York.

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