Shares of programmable logic chip makers Xilinx (XLNX) and Altera (ALTR) are both higher this morning after Deutsche Bank analyst Sukhi Nagesh initiated Xilinx with a Buy rating and reiterated a Hold rating on Altera, while saying both companies had “solid fundamentals.”
Nagesh has a positive view of the programmable logic market overall, with the devices continuing to take share from ASICs and application specific standard products, he writes.
Xilinx’s recovery from recession has been impressive, writes Nagesh, with a projected 38% jump in sales this year and 127% jump in profit. The company’s margins are “solid,” and the threat of an inventory correction in the communications equipment market — a big user of PLDs — is pretty much priced into the stock, with shares trading at 10 times the Street’s 2011 EPS estimate of $2.55. (Nagesh’s own estimate is actually below that, at $2.30.)
Altera’s also in good shape, with sales and revenue expected to rise even more sharply than Xilinx’s this year. However, the stock’s performed more strongly, and may not be fully pricing in the market’s inventory correction. Gross profit, moreover, is at 70%, and operating margin, at 45%, Nagesh notes, and above Altera’s own target range, which means margin’s probably going to come down “over the next year.”
Nagesh’s $33 price target on Altera assumes a 15 times multiple of 2011 EPS.
Xilinx shares today are up 42 cents, or 1.7%, at $25.62, while Altera shares are up 62 cents, or 2%, at $30.08.
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