Looking for a company with exposure to the semiconductor,
auto, and aerospace industries? Then
), Zacks Rank #1 (Strong Buy) should be on your buy list.
Mentor Graphics designs, manufactures, markets, and supports
electronic design automation software. The software helps
companies design circuit boards and integrated circuits.
Strong execution and business momentum:
In its July quarter, Mentor posted record revenue, bookings,
and operating income. In fact, bookings were up over 70%
year over year and should be supportive to future sales
growth. The favorable outlook is highlighted by a strong
upward revision to FY 2015 (January) earnings per share
estimates. The Zacks Consensus Earnings Estimate for FY 2015 is
up 9.7% over the last thirty days to $1.46 per share. There
was also a solid $0.03/share bump to FY 2014 EPS to $1.27.
Sales growth is expected to be healthy in the coming
year. The Zacks Sales Consensus for FY 2015 sees sales
rising 6.0% to $1.228 bln. The most recent analyst move was above
consensus at $1.235 bln.
As the chart above displays, earnings estimates have been
stair stepping higher in recent years, and estimates have made a
turn higher in recent weeks. The stock has also posted a
strong track record of posting positive surprises. The
company has recorded a positive earnings surprise 12 out of the
past 13 quarters.
On its website, Mentor proudly indicates that electronic car
manufacturer Tesla Motors has standardized on the Mentor Graphics
toolset for 12-volt electronic system designs.
Valuation is acceptable, as Mentor trades at 16.3 times
forward earnings which is in line with its 10 year median.
However, in the spirit of full disclosure the price to sales and
PEG ratio are high relative to their 10 year medians at 2.43 and
On August 22
, the company increased its share buyback authorization and has
$100 mln available for purchases. It pays a small $0.045
quarterly dividend, and the return of capital is a positive
dynamic. Free cash flow has risen in recent years and the
dividend and buyback seem to imply confidence in the future
There is a short base:
The short interest ratio is 5.39 down from the mid August high
of 6.33. However, it is well above the May low of 2.06 and
near the one year high. The short base suggests that some
investors are willing to fade the strength of corporate profits,
and may provide fuel for a rally. At the same time,
institutional investors could be attracted to the strong backlog
and upward revision to earnings.
The stock has posted a steady uptrend this year. A
breakout above the $23.20 area could draw in momentum buying and
put more pressure on shorts to cover.
In conclusion, Mentor may be the pick to help guide your
portfolio to profits
MENTOR GRAPHICS (MENT): Free Stock Analysis
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