SMTC - Semtech stock rises as B. Riley upgrades on potential 'acceleration' in 2024

2023-03-22 08:03:20 ET

Semtech ( NASDAQ: SMTC ) shares rose more than 3% in premarket trading on Wednesday as investment firm B. Riley upgraded the semiconductor supplier, noting the potential for "acceleration" next year.

Analyst Craig Ellis raised his rating on Semtech ( SMTC ) shares to buy from neutral and raised the per-share price target to $52 from $34, noting that the stock has underperformed the Philadelphia Semiconductor Index by 45 percentage points over the past nine months, but since early October, shares deserve a more positive stance because of the low valuation.

Ellis added that sentiment has been hurt by a "multi-quarter" revision cycle in which earnings per share have come down, along with the overhang from the Sierra Wireless deal , but it looks like stability could soon be near.

"[There is the] potential for significant further stock upside if non-IoT SMTC carve-outs are executed, which we believe could garner up to $3.0B in better case proceeds for deal debt paydown, EPS-accretive share repurchase, or strategic M&A to further scale up what could eventually be a high growth and high-margin long-range IoT leader," Ellis wrote in an investor note.

Regarding the Sierra Wireless deal, Ellis aded the deal still looks to be accretive, despite industry pressure and a rise in debt servicing costs.

Semtech ( SMTC ) said in January that it closed its $1.2B acquisition of Sierra Wireless.

In addition, Ellis added that the recent involvement of LionPoint Capital could help strengthen the case for "significant cost savings upside" and wind up creating more value than initially believed.

Ellis conceded that the upcoming CEO transition and timing of the new management's vision could limit "immediate financial catalyst potential," but over the longer-term, the stock is attractive, trading at under 14 times fiscal earnings, excluding the potential gains from Sierra Wireless.

Earlier this month, Semtech ( SMTC ) announced the retirement of president and chief executive officer Mohan Maheswaran, while also promoting Asaf Silberstein to the newly created role of chief operating officer .

Analysts are largely bullish on Semtech ( SMTC ). It has a BUY rating from Seeking Alpha authors , while Wall Street analysts rate it a BUY . Conversely, Seeking Alpha's quant system, which consistently beats the market, rates LYFT a HOLD .

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