Maxim (MXIM) Up 0.3% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Maxim Integrated Products (MXIM). Shares have added about 0.3% in that time frame, underperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Maxim due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Maxim Surpasses Earnings & Revenue Estimates in Q3

Maxim Integrated Products reported third-quarter fiscal 2020 adjusted earnings of 61 cents per share, which surpassed the Zacks Consensus Estimate by 7%. The bottom line also came within the guided range of 57-65 cents.

Further, the figure improved 17.3% year over year and 8.9% on a sequential basis.

Revenues of $561.92 million outpaced the Zacks Consensus Estimate of $558.31 million and came within management’s guided range of $555-$595 million. The top line increased 4% year over year and 2% on a sequential basis.

The upside can be attributed to the company’s solid performance across industrial, automotive, and communications and data center markets during the reported quarter.

Further, the company’s solid manufacturing strategies and diversified supply chain presence globally contributed to the results despite the coronavirus-induced disruption.

Maxim anticipates manufacturing operations to not run at full capacity in the fiscal fourth quarter owing to the initiatives being taken to protect employees from COVID-19 infection.

Nevertheless, the company’s strong manufacturing strategies are likely to aid it in delivering products to customers despite challenging scenario. Further, continuous share repurchase and dividend payment activities are likely to instil investor optimism in the stock.

End Market in Detail

Industrial: The company generated 30% of total revenues from this market during the reported quarter. Revenues in this market advanced 4% from the prior-year quarter primarily owing to an uptick in the automatic test equipment demand.

Automotive: This market accounted for 28% of the company’s revenues during the fiscal first quarter. Further, revenues were up 5% on a year-over-year basis, which was driven by strong performance of company’s automotive applications like battery management systems (BMS), driver assistance, infotainment and auto body electronics, during the reported quarter.

Consumer: Maxim generated 18% of revenues from this market. Revenues in this market declined 18% year over year on account of seasonal fluctuations and softness in the consumer electronics in the fiscal third quarter.

Nevertheless, uptick in the smartphone shipment during the quarter under review remained a positive.

Communications and Data Center: Revenues from this market, which now includes computing, accounted for 24% of the total revenues. This reflects an improvement of 26% from the year-ago quarter. This can be attributed to robust laser driver product portfolio that gained strong momentum across hyper scale data centers and 5G base station uplinks in the quarter under review. Further, the company experienced solid traction across base stations and data center applications on the back of its 25G and 100G optical products, respectively.

Operating Details

Non-GAAP gross margin was 66.1%, expanding 230 basis points (bps) from the year-ago quarter.

Non-GAAP operating expenses of $180.7 million decreased 0.2% year over year. Further, as a percentage of revenues, the figure contracted 120 bps from the prior-year quarter.

Per the company, operating margin came in at 32.6%, expanding 370 bps from the year-ago quarter.

Balance Sheet & Cash Flow

As of Mar 28, 2020, cash, cash equivalents and short-term investments were $1.7 billion, down from $1.8 billion as of Dec 28, 2019.

Further, long-term debt was $993.7 million at the end of fiscal third quarter compared with $993.3 million at fiscal second quarter-end.

During the quarter under review, cash flow from operations was $209.8 million, down from $237.5 million in the prior quarter. Further, the company utilized $17 million for capital expenditure during the fiscal third quarter.

Maxim spent $157 million in repurchasing shares and made dividend payment of $129 million (48 cents per share).

Guidance

For fourth-quarter fiscal 2020, earnings per share are expected in the range of 43-57 cents on an adjusted basis.

Further, Maxim expects revenues in the range of $480-$540 million. Non-GAAP gross margin is expected within 65.5-67.5%.

Management anticipates the industrial market to be sequentially up in the fiscal fourth quarter, thanks to the growing momentum across medical products owing to surge in customer demand amid this coronavirus pandemic.

Further, Maxim expects sequential growth in revenues in the communications and data center market in the fiscal fourth quarter owing to rapid deployment of its laser driver products.

Additionally, growing adoption of power and optical across hyperscale data centers, and 4G and 5G base station applications is expected to contribute to the performance.

However, the automotive market is anticipated to decline from the fiscal third quarter due to coronavirus led OEM factory closures, which are expected to cause softness in automotive demand.

Nevertheless, strong investments in power management, ADAS and BMS for electric vehicles and content growth opportunities are likely to remain tailwinds.

Meanwhile, Maxim is expected to witness significant decline in consumer market owing to coronavirus-induced low smartphone content and sluggish consumer spending.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month.

VGM Scores

At this time, Maxim has an average Growth Score of C, however its Momentum Score is doing a bit better with a B. Charting a somewhat similar path, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Maxim has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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