Stephens Calls Bottom In Semis, Likes These Four Stocks

• Semiconductors stocks have been under significant pressure over the past one month.
• Stephens’ Harsh Kumar highlighted 4 stocks that he believes are best positioned following the recent pullback.
• Although the macro environment is challenging, sentiment seems to be worse than the fundamentals, Kumar stated.

Analyst Harsh Kumar pointed out that several semi companies had report earnings broadly in-line to marginally head of expectations, although the macro environment continues to be choppy. He added that companies are witnessing strong trends in Automotive and Aerospace/Defense, as well as a rebound in Communications.

There are some challenging areas, including Consumer and the Apple supply chain, Kumar noted. He added, however, that the recent pullback appears “overblown,” shares are nearing a bottom and “sentiment seems to be worse than the fundamentals.”

The analyst cited the following four stocks which he believes are “best positioned” after the significant decline in the SOX:

• Qorvo Inc QRVO
• Microsemi Corporation MSCC
• M/A-COM Technology Solutions Hldgs Inc MTSI
• Skyworks Solutions Inc SWKS

Kumar expects these four stocks to outperform versus peers. Microsemi and M/A-COM Technology Solutions are likely to benefit the most from the Aerospace/Defense refresh cycle. Shares of Qorvo and Skyworks had plunged excessively and these companies could continue to generate topline growth, since their topline depends more on content growth than overall demand for higher units.

Qorvo

The price target is at $70. Kumar believes that the stock is now an “attractive opportunity” for a company that is poised to grow double digits y/y. “Moreover, we believe given the improving mix and insourcing of back-end manufacturing, QRVO is well positioned to continue to see margin expansion,” Kumar commented.

Microsemi

The price target is at $45. Microsemi appears poised to benefit from the refresh cycle in Aerospace/Defense, as well as accretion from the recently announced PMC-Sierra acquisition.

M/A-COM Technology Solutions

The price target is at $50. Kumar pointed out that the pullback in the company’s shares was largely due to the general pressure on the semi market. He believes that this is among the best positioned to “potentially double revenues over the next 3-5 years given a number of catalysts (both near-term and long-term).”

Skyworks

The price target is at $90. The analyst views Skyworks as a “well-run company that is currently being impacted by concerns around its largest customer’s supply chain.” Skyworks continues to diversify its business outside mobile, which has helped margin expansion. The current valuation is very attractive and the company could grow faster than the market, with more than 40 percent in operating margins, and “deliver an $8 earnings power run-rate in the next 6-8 quarters.”