We recently maintained our Neutral recommendation on Altera Corporation (ALTR).
Earnings estimates for 2011 have moved higher, driven by better-than-expected results for the first quarter that beat our expectations by a penny.
Fifteen out of the twenty seven analysts covering the stock have increased their estimates in the last thirty days while five analysts moved in the opposite direction. Consequently, estimates for 2011 have increased by 6 cents in the last thirty days.
For 2012, nine out of the twenty four analysts covering the stock have upped their estimates in the last thirty days while three analysts moved in the opposite direction. Estimates for 2012 have increased by seven cents in the last thirty days.
For the upcoming quarter, sixteen out of the twenty six analysts have increased their estimates while five analysts moved in the opposite direction. As a result, estimates have moved up by two cents in the last thirty days.
We are particularly encouraged by the company’s success at smaller geometries. Altera continues to benefit from the growth in 65-nm and 40-nm FPGAs as customer designs move from prototyping to production. The industry-leading 40-nanometer product execution and the company’s ongoing efforts to improve operating efficiency remain the keys to long-term revenue growth. Management stated that design wins in 40-nanometer are well ahead of any previous generation products.
In 2010, Altera focused on 28-nm development and will introduce more products in 28-nm than any previous process node in the coming years. Altera has a pipeline of 28 nanometer products, which it believes will maintain the growth momentum in the upcoming quarters. Management stated that the company remains on track to sample its 28nm products in the first quarter of 2011.
Altera seems to have gained market share as rival Xilinx, Inc (XLNX) was plagued with supply constraints in some of its products.
Moreover, the Stratix and Cyclone families (new generation products) generate higher margins than older product lines. However, margins have already peaked recently and will not sustain in the long run.
However, we believe that most of the positives attached to the stock are already discounted at current levels. Therefore, we see limited upside going forward and maintain our NEUTRAL recommendation on Altera. Our recommendation is supported by a Zacks #3 Rank, which translates into a short-term Hold rating.
ALTERA CORP (ALTR): Free Stock Analysis Report
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