On May 9, 2015, Zacks Investment Research downgraded semiconductor manufacturer Anadigics, Inc.ANAD to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold), primarily on the back of sedate first-quarter 2015 results. Earnings estimates have also moved down for the company post the earnings release, signifying negative investor confidence in the stock.
Why the Downgrade?
Total revenue for the reported quarter was $18.4 million, down 21.0% year over year from $23.3 million in the prior-year period. Revenues missed the Zacks Consensus Estimate of $18.0 million. The sharp year-over-year fall in revenues was largely attributable to a decline in demand for its legacy mobile business, partly offset by a stronger-than-expected progress in infrastructure-targeted activities.
Anadigics reported first-quarter 2015 non-GAAP net loss of $3.8 million or loss of 4 cents per share, while GAAP net loss came in at 6 cents per share. Anadigics has been incurring losses over the last few quarters and we do not expect the company to return to profitability before 2017. Although adjusted gross margin improved in the reported quarter, it continues to be under pressure from underutilization of capacity as manufacturing costs are relatively fixed. The company needs to generate higher revenues to offset these costs.
Concurrent with the first-quarter 2015 earnings release, management offered a grim outlook for the ongoing quarter as well. For the second quarter of 2015, Anadigics expects total revenue to decline by 10% to 15% sequentially, driven by a decrease in the mobile business and sequential decline in infrastructure revenues. In addition, non-GAAP gross margin is expected to contract 100-300 basis points sequentially due to lower top-line growth. Operating expenses are expected to be down 5-7% sequentially with capacity utilization of 25-30%.
Post-earnings, the share prices of the company have declined by 30% to $0.9110 as of May 9, 2015. A downgrade in the Zacks Rank serves as one of the triggers to exit certain underperformers at the right time to maximize portfolio returns. Selling off losers can at times be difficult, but with the continuous share price decline, it seems to be an opportune time to get rid of this stock before more losses hit your portfolio.
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