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Linear Technology (LLTC) Up 3.5% Since Earnings Report: Can It Continue?


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A month has gone by since the last earnings report for Linear Technology CorporationLLTC . Shares have added about 3.5% in that time frame, outperforming the market.

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

Linear Technology (LLTC) Beats on Q2 Earnings, Revenues


Linear Technology Corp. reported second-quarter fiscal 2017 earnings of 54 cents, which exceeded the Zacks Consensus Estimate by a penny. Earnings increased 1.60% sequentially and 8.8% year over year.

In Jul 2016, Linear announced that Analog Devices, Inc. agreed to acquire its business in a cash and stock deal worth $30 billion. Per the agreement, Linear shareholders will receive $46.00 in cash for each share and an additional 0.2321 of Analog Devices' common stock for each Linear share.

The deal is expected to be completed by the end of the first half of calendar year 2017.

The acquisition is expected to be accretive to non-GAAP earnings and cash flow going forward. Also, Linear expects to realize $150 million in annual cost synergies in the first 18 months following the closure. The merger of these two companies will create an analog industry leader across a huge range of products, customer breadth and scale. The deal will expand Analog Devices' total addressable market to $14 billion from $8 billion, allowing it to tap the phenomenal demand in some of the most attractive markets, namely industrial, automotive and communications infrastructure markets.

A quick look at the numbers:

Revenues

Linear reported revenues of $375.8 million, up 8.3% year over year and 0.5% sequentially. The figures were slightly above the Zacks Consensus Estimate of $374.0 million. The increase in revenue was driven by strong growth in the company's Communication and Industrial markets.

Margins

Pro forma gross margin was 76.3%, up 35 basis points (bps) sequentially and 63 bps year over year, driven by a richer product mix.

Operating expenses of $113.8 million increased 0.7% sequentially and 0.4% year over year. As a percentage of sales, research & development remained the same while selling, general & administrative expenses decreased from the year-ago quarter. As a result, operating margin of 45.5% was up 30 bps sequentially and 246 bps year over year.

GAAP net income was $124.0 million or 50 cents per share compared with $115.1 million or 47 cents in the previous quarter and $121.5 million or 50 cents a year ago. Excluding merger- related charges, pro-forma earnings were $132.2 million versus $130.2 million in the previous quarter and $121.5 million in the year-ago quarter.

Balance Sheet

Linear exited the fiscal second quarter with cash, cash equivalents and marketable securities of approximately $1.61 billion compared with $1.52 billion in the prior quarter. Account receivables were $145.1 million, down from $162.4 million in the fiscal first quarter.

Linear generated $179.5 million from cash for operations and spent $12.1 million on capital expenditures. The company paid $78.7 million as dividend but made no share repurchases as it will soon be acquired by Analog Devices.

Conclusion

Linear Technology reported a strong fiscal second quarter with both earnings and revenues exceeding our expectations.

The company's business is well diversified among core markets, including industrial, automotive and communications infrastructure. It has an impressive record of returning cash to shareholders through dividends and share buybacks, which should increase investors' confidence, in our view.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates flatlined during the past month. There has been one revision higher for the current quarter compared to two lower.

Linear Technology Corporation Price and Consensus

Linear Technology Corporation Price and Consensus | Linear Technology Corporation Quote



VGM Scores

At this time, Linear Technology's stock has a nice score of 'B' on both growth the momentum front. However, the stock was allocated a grade of 'F' on the value side, putting it in the lowest quintile for this investment strategy.

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

Zacks ''style scores indicate that the company's stock is suitable for growth and momentum investors.

Outlook

The stock has a Zacks Rank #3 (Hold). We are expecting an inline return from the stock in the next few months.


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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



This article appears in: Investing , Earnings


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