RBC Capital Reiterates Top Pick on Microsemi (MSCC) Following Analyst Day
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RBC Capital reiterated a Top Pick rating and $48.00 price target on Microsemi Corporation (NASDAQ: MSCC) following the company's analyst day. RBC believes that organic revenue growth would be the largest driver of stock price appreciation at this point. Also, RBC does not foresee a deal and the company has reiterated that it is off the market.
Analyst Mitch Steves commented, "After Microsemi's analyst day, investors have focused on five key items: 1) 6-8% revenue growth: overall it appears that the buyside is haircutting this guidance and expectations are set for ~3–4% organic growth. 2) 35% operating margins: While investors think this is achievable long-term, expectations appear to be around ~33% for back half FY17. 3) Acquisitions: Despite multiple reiterations suggesting that the company will not make an acquisition until leverage is ~3x or lower, this remains a concern (we think a deal is not on the table until leverage subsides). 4) Leverage: While the company reiterated its goal of obtaining 3x leverage in 18 months after PMCS we think investors now expect this to be obtained within ~15 months or a full quarter ahead of schedule at a minimum. 5) End-market mix: With a new end-market mix, the investment community is laser-focused on organic growth given that the mix is now materially different from the past and could command a higher or lower valuation depending on y/y growth being at or above ~3–4%. Net Net: If the company is able to focus squarely on de-leveraging and revenue growth (while avoiding an acquisition), we think the stock is set up to outperform despite slightly higher expectations for a lower leverage ratio exiting Mar-qtr."
Shares of Microsemi Corporation closed at $39.52 yesterday.
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