Q1 Preview: Analysts Bullish on NVIDIA's (NVDA) Icera Acquisition, But More Planning Needed

Shares of NVIDIA (Nasdaq: NVDA) are trading higher this afternoon as investors are anticipating a strong first-quarter earnings report after the market close Thursday. The stock last traded at $20.22, up 1.8 percent from Wednesday's closing price.

NVIDIA is expected to report EPS of $0.19 on sales of $946.89 million.

Last quarter, the Santa Clara, CA-based video card and chip manufacturer had EPS of $0.23 on revs of $886.4 million, both mixed versus analyst estimates. Looking back at the first quarter of last year, NVIDIA posted EPS of $0.23 on revs of $1 billion, beating consensus views calling for EPS of $0.22 on revenue of $985.88 million.

Shares fell 18.3 percent through the quarter and are up 1.3 percent since.

NVIDIA stock is trading at a P/E of 16.0x FY12 EPS estimates, compared with 11.9x at Advanced Micro Devices (NYSE: AMD) and 9.9x for Intel Corporation (Nasdaq: INTC).

Data from Bloomberg has 10 analysts with a Buy on NVIDIA, 21 with a Hold, and one suggesting to Sell. The analyst price target average is $24, with a high of $40 and low of $17. Shares have traded in a range of $26.17 - $8.65 over the last 52-weeks.

Analyst Summary

• Goldman Sachs sees EPS of $0.19 in the quarter. Goldman believes the recent acquisition of Icera "represents a key step in Nvidia’s strategy of expanding its presence in mobile devices. We think Icera positions Nvidia to most effectively compete in the notebook PC and tablet markets – more so than in smartphones – given our view of Icera’s technical strengths (emphasis on data vs. voice and flexibility vs. cost). However, we think Nvidia may need to gain additional technology (such as WiFi/ .PS) in order to compete with a full platform against Qualcomm and Broadcom in these markets."
  
  Goldman has a Neutral rating and $17 price target on the stock.
  
  
• Deutsche Bank is modeling for EPS of $0.19 on revs of $940 million. "We expect margins to be solid as mix continues to help the company (high-end discrete GPUs, higher royalty & Tegra, lower chipset revenue). Given the 1Q strength we've seen from Computing comps, we see potential for incremental upside to revs coming from GPU segment."
  
  On the Icera acquisition, Deutsche says: "Strategically, we believe the transaction is logical as it provides NVDA with a necessary apps processor + baseband integration path in Handsets and Tablets. However, beyond the $367m purchase price, we expect Icera to pressure NVDA's margins on a go forward basis due to high levels of investment necessary to compete in the baseband market."
  
  Deutsche has a Hold and $20 price target on the shares.

Stay tuned to StreetInsider.com's EPS Insider section to see our analysis of the highly-anticipated quarterly results within seconds of the release.

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