This stock could be back from the dead. After a long period of underperformance I finally think this company has turned the corner and offers strong returns for those shareholders willing to take the plunge. The stock was a former high-flyer, but fell on hard times as brutal competition struck it down in its prime. I have news for you: it’s back.
For those who don’t know, Nvidia (NVDA) provides visual computing technologies that generate interactive graphics on workstations, personal computers, game consoles, and mobile devices. It operates in four segments: Graphic Processing Unit (GPU), Professional Solutions Business (PSB), Media and Communications Processor (MCP), and Consumer Products Business (CPB).
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The stock got a nice boost last week after BMO Capital Markets analyst Ambrish Srivastava upgraded NVDA from “Market Perform” to “Outperform” and also raised the target price from $9 to $16. I think it’s quite significant that the analyst almost doubled his target price. Nvidia has been suffering from market share losses, but the analyst believes that the introduction of its new Tegra line of products will halt market share losses as the products are gaining momentum. Even after the rise this week, the stock is down about 35% this year, significantly underperforming the market.
Reported results haven’t been good of late, which is a large part of why the stock has been terrible. It missed analyst estimates by almost 73% in its latest quarter, and analysts have been busy chopping earnings estimates. Over the past 60 days, this year’s numbers have dropped from 95 cents per share to just 57 cents. This is a huge drop, but the current estimate should be beat by the company. Investors require a few quarters of proof that a company has turned around, but it has to start somewhere and that could be now.
I like the balance sheet that is full of $1.77 billion of cash and a very managable debt load. Operating cash flows were over $239 million last year and should grow with the success of the Tegra line of products. The stock has risen from $9.72 to over $12 over the past month, but there is more room to run. I think the stock will hit $16-$18 per share over the next year as more investors come on board to profit from the turnaround story.
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