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Bull of the Day: Inphi Corporation (IPHI)

Benjamin Rains

Semiconductor stocks have surged over the last year and a return to sales and earnings growth appears to be in the cards for 2020. And Inphi Corporation (IPHI), which has crushed its industry’s recent expansion, looks like a chip stock that investors might want to buy at the moment.

The Basics   

Inphi makes semiconductor components and optical subsystems for networking OEMs, cloud computing and telecom companies, and more. Inphi’s pitch to clients and investors is straightforward: the firm helps “move big data fast, around the globe, with high quality and reliability.”

The Santa Clara, California-based firm topped our third-quarter 2019 estimates in the fall, reporting record revenue and EPS in the process. Cloud computing and telecom unit strength helped drive Inphi’s Q3 performance.

More recently, Inphi officially announced on January 13 that it completed its previously announced acquisition of eSilicon for $216 million in both cash and the assumption of debt. The company expects the deal will “further reinforce its premier positioning in data center interconnects, expand its presence into strategic geographic regions for talent acquisition and accelerate its strategic roadmap in developing electro-optics solutions for our Cloud and telecom customers.”

In terms of the broader semiconductor market picture, investors should note that the chip space is coming off one of its worst years since the early 2000s, with overall sales projected to fall roughly 13% in 2019, according to the Semiconductor Industry Association. Looking ahead, the chip space is set to bounce back in 2020 in terms top and bottom line growth, as the industry continues to act as the backbone of the technological revolution.

 

 

 

 

Other Fundamentals

IPHI shares have skyrocketed roughly 140% in the last year to easily surpass its Electronic-Semiconductors Market’s 37% average climb and the S&P 500’s 24%. Inphi also outpaced Micron (MU) and Nvidia (NVDA) and nearly matched high-flying Advanced Micro Devices (AMD).

Jumping back further, we can see that Inphi stock is up around 337% in the past five years, despite a roughly year-long downturn that began in February 2017.

The company’s recent surge has stretched its valuation picture, but IPHI sports an “A” grade for Growth and a “B” for Momentum in our Style Scores system. Plus, Inphi’s Semiconductor - Analog and Mixed industry rests in the top 30% of our more than 250 Zacks industries at the moment.

 

 

 

 

Bottom Line

Our current Zacks estimates call for the firm’s adjusted Q4 earnings to come in flat from the year-ago period at $0.45 per share on the back of 15.5% sales growth.

Meanwhile, the company’s full-year fiscal 2019 revenues are projected to jump over 23% from $294.5 million in 2018 to $362.6 million. Inphi’s fiscal 2020 sales are then expected to climb 21.2% above our current-year estimate to reach $439.6 million.

The firm’s top-line expansion is expected to lift its adjusted fiscal 2019 earnings by 84% and an additional 32% in 2020 to hit $2.09 a share.

Inphi is a Zacks Rank #1 (Strong Buy) right now, based on its positive earnings revision activity. Peeking further ahead, its adjusted earnings are projected to expand by roughly 40% on an annualized basis over the next three to five years, which easily tops AMD’s 24% and Nvidia’s 9.4%.

Therefore, growth-minded investors should think about considering Inphi stock. IPHI did touch a new 52-week high on January 17. This means some might wait for a pullback, but who knows when that will be as the market continues to climb in 2020.

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NVIDIA Corporation (NVDA) : Free Stock Analysis Report
 
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