On Tuesday, BofA Securities adjusted its outlook on Lattice (OTC:LTTC) Semiconductor (NASDAQ:LSCC), increasing the price target to $83.00 from the previous $75.00, while keeping a Neutral stance on the stock. The revision follows Lattice's first-quarter performance, which aligned with expectations, and its second-quarter revenue guidance that fell short of analyst forecasts. The company's midpoint guidance for the coming quarter is $130 million, an 8% sequential decline, compared to the anticipated flat revenue of $140 million.
Lattice Semiconductor (NASDAQ:LSCC)'s revenue is being impacted by inventory corrections in the auto and industrial sectors, which account for approximately 55% of its sales, and by weakness in the telecommunications sector. This effect is prolonged for Lattice since it adjusted to the market downturn later than its peers, who did so one to two quarters earlier.
Nevertheless, the compute segment, which may soon represent 75% of the company's Communications and Computing (C&C) segment, showed quarter-over-quarter growth. This was attributed to ongoing data center unit gains and a 50% increase in content within current-generation servers.
Management anticipates that content expansion will continue into the next-generation GR/Turin servers despite growing competition. BofA Securities predicts that the second quarter will mark a low point for the company, with expectations of a double-digit quarter-over-quarter recovery in the third and fourth quarters. This projection is based on the normalization of auto and industrial inventory and the ramp-up of unique product launches, like Avant-E and new Nexus, as well as increased software attachment, which is already over 50%.
Despite another downward revision, the firm has reduced its calendar year 2024 sales and per-forma earnings per share (pf-EPS) estimates by 3% and 8%, respectively. However, the forecasts for calendar years 2025 and 2026 remain largely unchanged.
The price objective was raised based on a price-to-earnings (P/E) ratio of 48 times the estimated earnings for calendar year 2025, up from the previous 43 times, which is considered mid-range in the historical P/E spectrum of 20 to 70 times. BofA Securities reiterated its Neutral rating, cautioning about the increasing competitive pressures from Intel (NASDAQ:INTC)'s Altera spinout and other non-FPGA vendors in the long term.
InvestingPro Insights
In light of BofA Securities' recent outlook adjustment for Lattice Semiconductor (NASDAQ:LSCC), InvestingPro data and tips provide additional context for investors considering the stock. Lattice Semiconductor boasts a perfect Piotroski Score of 9, suggesting a strong financial position. The company is also trading at a low P/E ratio relative to near-term earnings growth, with a current P/E ratio of 40.71 and an adjusted P/E ratio for the last twelve months as of Q1 2024 at 47.83. This could indicate a potentially attractive entry point for investors looking at earnings potential.
Furthermore, Lattice has experienced a significant return over the last week, with a 13.08% price total return, and a strong return over the last three months at 26.29%. These figures highlight the stock's recent performance momentum. Additionally, with a market capitalization of 10.57 billion USD, Lattice is a notable player in the semiconductor space.
Investors should note that while analysts anticipate a sales decline in the current year, the company's cash flows can sufficiently cover interest payments, and its liquid assets exceed short-term obligations. This financial resilience could be a comforting factor for those concerned about near-term market volatility. For those interested in more in-depth analysis, there are over 19 additional InvestingPro Tips available for Lattice Semiconductor, which can be accessed with a subscription. To enhance your investment research, use the coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription at InvestingPro.
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