Bank of America Downgrades MACOM On Demand Uncertainty

Harping on persisting demand uncertainty faced by MACOM Technology Solutions Holdings Inc MTSI — especially in China — a Bank of America analyst downgraded the company Wednesday. 

Macom reported disappointing fiscal fourth quarter results Tuesday and issued a downbeat sales forecast for the first quarter of 2018. 

The Analyst 

Bank of America Merrill Lynch analyst Vivek Arya downgraded shares of Macom from Neutral to Underperform and reduced his price target from $45 to $30.

The Thesis

Macom missed Q4 sales by $5 million and guided Q1 sales about 22 percent below consensus expectations, Arya said. (See Arya's track record here.) 

The management attributed the weakness to weakness in China demand, tougher comps and seasonality in the industrial/defense segment and a fall off in legacy products in the data center, the analyst said. 

While the situation might improve in March, visibility is limited, the analyst said. Fiscal 2018 sales could be flat at best year-over-year, coming in at the low end of the industry, Arya said.

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Taking a more conservative view, BofA Merrill Lynch forecasts a 4 percent sales decline for Macom in 2018. The firm lowered its 2018 pro forma earnings per share estimate for the semiconductor company from $2.49 to $1.67.

The 49-percent cut to the 2018 bottom line estimate is due to the "hard pause" in China, Arya said. Metro/long-haul sales into China were down 43 percent, while an accelerated drop was suggested by Macom's Q1 guidance. 

China uncertainty could persist even longer, suggesting there could be more downside risk to estimates, Arya said. 

"We lower our PO to $30 from $43, based on 15x CY18 PE (vs 16.7x before), a turn lower than MTSI's historical average, to capture the slower growth," the analyst said.

The Price Action

At the time of writing, shares of MACOM were slumping 18 percent to $30.02. The stock has lost 33.9 percent year-to-date.

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