Shares of Texas Instruments (TXN), Lam Research (LRCX), Xilinx (XLNX) and Teradyne (TER) are on the rise after the companies reported quarterly results. While Xilinx announced better than expected earnings, Lam Research and Teradyne delivered "better than feared" results and Texas Instruments announced an in-line quarter and guidance moderately below consensus estimates, Goldman Sachs analyst Toshiya Hari argued that the semiconductor sector is "not quite out of the woods. " The analyst would recommend investors to only buy or own stocks with "idiosyncratic EPS drivers" or positively skewed risk and reward.
RESULTS: On Wednesday night, Xilinx reported third quarter adjusted earnings per share of 92c and revenue of $800M, both above consensus estimates of 85c and $770.49M, respectively. The company said it sees fourth quarter revenue between $815M-$835M and adjusted gross margin of about 68.5%. For fiscal year 2019, Xilinx expects revenue above $3B, with consensus at $2.98B. Meanwhile, Lam Research reported second quarter EPS of $3.87 and revenue of $2.52B, beating estimates of $3.66 and $2.5B, respectively. For the third quarter, the company expects EPS of $3.40, plus/minus 20c, and revenue of $2.4B, plus/minus $150M, with consensus at $3.35 and $2.45B, respectively. Also on Wednesday, Teradyne reported fourth quarter EPS of 63c and revenue of $520M, beating estimates of 50c and $494.18M, respectively. The company said it sees first quarter EPS between 29c-47c, with consensus at 46c, and revenue for the quarter between $460M-$490M, with consensus estimates at $480M. Texas Instruments also announced fourth quarter results. The company reported EPS of $1.27, which was better than the expected $1.24, and revenue for the quarter of $3.72B, slightly below consensus estimate of $3.75B. For the first quarter, Texas Instruments expects EPS of $1.03-$1.21, with expectations at $1.20, and revenue between $3.34B-$3.62B, with consensus at $3.6B. Intel (INTC) is scheduled to report fourth quarter results on Thursday after market close.
'NOT QUITE OUT OF THE WOODS': Commenting on the quarterly results, Goldman Sachs' Hari said that the semiconductor sector is "not quite out of the woods" and would recommend investors to only buy or own stocks with idiosyncratic EPS drivers and/or positively skewed risk and reward. The analyst reiterated a Buy rating on Xilinx stock, which is also on his firm’s Conviction List, and raised his price target on the shares to $105 from $95 as he believes the company is well positioned to benefit from secular tailwinds, including 5G and hyperscale. Further, Hari pointed out that Xilinx has limited to no exposure to relatively challenged end-markets like smartphones, automotive and industrial, and is poised to gradually gain share at the expense of Intel's Altera. Regarding Lam Research, Hari raised his price target on the stock to $158 from $157 and reiterated a Neutral rating on the name, saying he remains on the sidelines despite valuation on normalized earnings near historical lows as he awaits a resetting of Street estimates. Lastly, the analyst reiterated a Neutral rating on Texas Instruments and lowered his price target on the stock to $85 from $89. In spite of the weak outlook in Automotive and Industrial, Hari views the stock as "relatively defensive" within the context of his analog semiconductor coverage and instead maintains Sell ratings on Maxim Integrated (MXIM) and Analog Devices (ADI). Also commenting on Texas Instruments' quarterly results, Citi analyst Christopher Danely told investors that he believes the downside "appears to be subsiding," and that there are "multiple signs" Texas Instruments shares are "near a bottom." Revenue has dropped 18% in two quarters, well below end demand and the most since the great recession in 2008, he noted. Danely reiterated a Buy rating on TI shares.
PRICE ACTION: In afternoon trading, shares of Xilinx have jumped over 16%, Lam Research and Teradyne have gained more than 13%, and Texas Instruments' stock has advanced about 5%. Also higher, shares of Intel have risen over 3%.