Estimates have been falling for
) after the company reported soft second quarter results and
provided weak third quarter guidance. It is a Zacks Rank #5 (Strong
Despite the negative earnings momentum, shares of Silicon Labs
still trade at a premium valuation. Investors may want to wait for
earnings momentum to turn around before establishing a long
Silicon Labs develops analog-intensive, mixed-signal integrated
circuits used in a wide range of applications such as set-top
boxes, televisions, and cell phones. The company was founded in
1996 and has a market cap of $1.7 billion.
Soft Q2 Results, Weak Guidance
Silicon Labs reported its second quarter results on July 25.
Adjusted earnings per share came in at 33 cents, missing the Zacks
Consensus Estimate by 3 cents.
Revenues declined 3% from the previous quarter to $141.5 million,
which was also below the consensus at $143.0 million. This decrease
was driven by steep declines in some of the company's legacy
Following the soft Q2 results, management guided Q3 EPS
significantly below the consensus at the time. This prompted
analysts to revise their estimates significantly lower for both
2013 and 2014, sending the stock to a Zacks Rank #5 (Strong Sell).
The Zacks Consensus Estimate for 2013 is now $1.46, down from $1.73
just 30 days ago. The 2014 consensus is currently $1.65, down from
$1.94 over the same period.
You can see the big drop in consensus estimates in the following
Shares of Silicon Labs are down more than -12% since the Q2
earnings release. Despite this, the stock doesn't look like a value
here. Shares currently trade around 25x 12-month forward earnings,
which is a premium to the industry median 16x. Its price to cash
flow ratio of 19 is also above the industry median of 14x.
The Bottom Line
With falling earnings estimates and premium valuation, investors
should consider avoiding this Zacks Rank #5 (Strong Sell) stock
until its earnings momentum turns around.
Investors still interested in the 'Semiconductor - Analog &
Mixed' industry may want to take a look at
), which carries a Zacks Rank of 1 (Strong Buy) and trades at 19x
forward earnings, or
), which has a Zacks Rank of 2 (Buy) and trades at 20x.
Todd Bunton is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
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