Microchip Technology Inc. (NASDAQ: MCHP ) - Shares of MCHP stock fell almost 2% on Friday on what appeared to be profit-taking. This pullback could provide traders with an advantageous entry point.
The mid-cap semiconductor company is scheduled to report quarterly earnings on Aug. 8, with analysts expecting a 7% increase in earnings to 74 cents per share on a 54% jump in revenue to $821.4 million. Microchip Technology has exceeded analysts' earnings estimates in each of the past three quarters.
Capital IQ Equity Research rates MCHP stock a "Strong Buy" with a 12-month price target of $59. Its analysts believe Microchip Technology will benefit from the recently completed Atmel acquisition, as well as improving order trends and healthy consumer inventories.
For the current fiscal year, which ends in March, the consensus expects earnings to grow 18%, followed by another 17% increase in the next fiscal year.
Turning to the chart, we see that MCHP stock is in a bull market after breaking from a double-top in May on high volume after a 19-month consolidation between $40 and $50. The break was followed by a one-month consolidation, then another break in June, followed in July by two days of very high volume and a break to a new high at $58.74.
MCHP stock is now consolidating in a bullish flag formation. MACD is bullish, having adjusted from an overbought condition.
Traders should look to buy MCHP stock on continued profit-taking, which could drop its price close to $54 for a trade to $62. If successful, they could book a return of almost 15%.
MCHP stock is also appropriate for long-term investors, who could see even high capital gains and also benefit from Microchip Technology's relatively high dividend yield. The company pays an annual dividend of $1.44 per share for a forward yield of 2.6%. Shares are expected to go ex-dividend in early September.
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