Tuesday, Needham maintained a Buy rating on Lattice (OTC:LTTC) Semiconductor (NASDAQ:LSCC) and increased its price target to $80 from $75. Lattice Semiconductor reported first-quarter 2024 results that aligned with expectations, although the company forecasted a lower guidance due to further weakening in its Communication subsegment and ongoing destocking.
The firm's analysis pointed out that management at Lattice Semiconductor anticipates a return to half-over-half revenue growth in the second half of 2024. This outlook is supported by both company-specific developments, such as the Nexus and Avant product ramps, and industry-wide factors, including an expected reduction in inventory destocking.
Despite the current market challenges, Needham's revenue estimates suggest a peak to trough decline of 32% for Lattice Semiconductor, which the firm considers reasonable and more favorable compared to its FPGA industry peers. Additionally, the firm's gross margin (GM) estimates may prove to be conservative as the company's management expects net gross margins to approach 70% by the end of 2024, which is sooner than Needham's previous model that projected this margin by the second quarter of 2025.
The firm further highlighted Lattice Semiconductor's potential for increasing dollar content in the upcoming two to three server generations. Lattice's field-programmable gate arrays (FPGAs) are integral for control, management, and security functions, and the company is actively engaged with all significant hyperscalers, cloud service providers (CSPs), and original equipment manufacturers (OEMs).
The revised price target of $80 is based on a 40x multiple of Needham's calendar year 2026 net earnings per share (EPS) estimate of $2.00 for Lattice Semiconductor.
InvestingPro Insights
Complementing Needham's optimistic outlook on Lattice Semiconductor, InvestingPro highlights a robust financial health and potential upside for the company. With a perfect Piotroski Score of 9, Lattice Semiconductor stands on solid financial footing. The company is trading at a low P/E ratio relative to near-term earnings growth, which could indicate an undervalued stock poised for growth, especially considering its significant return over the last week. Additionally, Lattice Semiconductor's liquid assets exceed its short-term obligations, providing a cushion against market volatility.
InvestingPro Data also reveals a market capitalization of $10.57 billion and a high gross profit margin of 69.53% for the last twelve months as of Q1 2024. The company's operating income margin stands at a robust 24.98%, underlining its efficiency in generating profits from its operations. Although analysts predict a decline in sales and net income for the current year, the substantial returns over the previous week and months suggest a resilient stock performance in the short term.
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