Infineon (IFNNY) Upgraded to Strong Buy on Positive Guidance

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On Jun 22, Infineon Technologies AGIFNNY was upgraded to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

The upgrade can primarily be attributed to the company's impressive fiscal 2017 guidance, which has driven earnings estimates higher over the last 30 days.

Based on better-than-expected second-quarter results, management raised the full-year guidance. For fiscal 2017, Infineon now forecasts revenue growth of around 8%-11%, based on an assumed exchange rate of $1.10 to Euro, with segment operating margin of 17% at the mid-point of revenue guidance.

For third-quarter 2017, Infineon expects revenues to increase 3% (+/- 2%) sequentially. At the mid-point of the guided revenue range, segment operating margin is expected to be 17.5%.

The Zacks Consensus Estimates for 2017 has increased 1.03% to 98 cents over the last 30 days. For 2018, the consensus estimate is currently pegged at $1.20, up 3.44% over the same time frame.

We also note that shares of the company have outperformed the Zacks Electronics-Semiconductors market on a year-to-date basis. While the industry gained 23.3%, the stock returned 28.3%.

Growth Catalysts

The company has high growth prospects in the automotive market. Its customer base includes eight of the top-10 electric vehicle makers including Tesla TSLA , BMW and Renault. Moreover, the company's focus on energy-efficient solutions is a key driver.

We believe continued high demand for driver assistance systems and products deployed in hybrid and electric vehicles and home appliances, traction, electric drives backed the revenue growth in the second quarter, which saw year-on-year increase of 9.7%. These factors continue to be key growth catalysts for the company.

Infineon Technologies AG Revenue (TTM)

Infineon Technologies AG Revenue (TTM) | Infineon Technologies AG Quote

Notably, the company recently demonstrated post-quantum cryptography on a contactless security chip, which will make transition between today's security protocols to next-generation post-quantum cryptography (PQC) simpler. The first-of-its-kind technology is anticipated to provide the company a first mover's advantage.

All these have worked together to aid the company's growth.

Key Picks

Other stocks that can be considered by investors are Applied Optoelectronics, Inc. AAOI , and Applied Materials, Inc. AMAT , both sporting a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.

The long-term earnings growth rate for Applied Optoelectronics and Applied Materials is projected to be 20% and 16.58%, respectively.

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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.

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

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