On Dec 31, 2016, Zacks Investment Research upgraded Xilinx Inc.XLNX to a Zacks Rank #1 (Strong Buy). With a robust return of 31.8% over the past one year, positive estimate revisions over the last 60 days and strong fundamentals, Xilinx is an attractive investment opportunity.
Why the Upgrade?
Over the past 60 days, fiscal 2017 estimates were revised upward, taking the Zacks Consensus Estimate up from $2.24 per share to $2.25 per share. Xilinx also delivered positive earnings surprises in the last four quarters with an average beat of 6.9%.
Moreover, combined with other attractive features like high return on equity (ROE) and high return on assets (ROA), the stock looks very attractive. While its ROE indicates that the company is reinvesting its cash at a high rate of return, ROA is the profit that it earns for every dollar of its assets. Xilinx currently trades at a ROE of 23.2%, much higher than the industry average of 18.8%. Notably, the company has an ROA of 12.3% compared with the industry average of 10.7%.
Another metric to consider here is the Price/Cash Flow ratio, which should be less than X-Industry. This measures how much investors pay for one dollar of free cash flow. A lower ratio indicates that investors need to pay less for a better cash flow generating stock. Xilinx currently trades at a forward P/FCF of 18.5x compared with the industry group's average of 21.9x.
Over the last six months, Xilinx has increased 30.7% compared with the Zacks categorized Electronic-Semiconductors industry that increased just 26.6%. The stock's long-term earnings per share growth rate is 8.25%.
Increasing demand for 28-nm, 20-nm and 16-nm nodes, driven by higher wireless deployments and strength in the wired communication segment, is expected to drive growth. The company's new product launches should further aid revenues, going forward.
We are also encouraged by Xilinx's endeavor to return shareholder value through continued share buybacks and dividends. Notably, during fiscal 2016, the company returned over $762 million through share buyback and dividend payments. Continuing with its policy of returning cash to shareholders, the company paid $367.6 million as cash dividends and share repurchases during the first half of fiscal 2017. These investor-friendly initiatives not only boost earnings but also increase investors' confidence and loyalty.
However, competition from the likes of Lattice Semiconductor Corporation LSCC remains a material headwind.
Besides Xilinx, investors may consider NVIDIA Corporation NVDA and Broadcom Limited AVGO , both sporting a Zacks Rank #1. You can see the complete list of today's Zacks #1 Rank stocks here.
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