NVIDIA (NVDA) shares have started off 2011 on a hot streak, but its not too late to get in.
Estimates are soaring after the recent earnings surprise but shares of this Zacks #1 Rank (Strong Buy) are at a fantastic entry point.
Company Description
NVIDIA provides visual computing technologies that allow interactive PCs, video games and mobile devices. Its main segment is the Graphic Processing Unit, or GPU, which allows for dramatically realistic images.
Recently the CEO said, “Even as we are extending our leadership in visual computing, our investment in mobile computing and parallel computing is now driving our growth.”
Another Surprise
On Feb 16 NVIDIA reported fourth-quarter results that came in ahead of expectations. EPS was $0.23, 2 cents better than the Zacks Consensus Estimate. Net income more than doubled on a sequential basis, to $172 million.
The company’s top line increase 5% over the previous period to $886 million. While this was down on a year over year basis, the company guided higher thanks to announcements from key customers including Acer, Dell, LG, and Motorola.
A Flurry of Estimate Revisions
Technically, the estimate revisions were mixed, but the upward revisions drastically outweigh those that lowered. For fiscal 2012, the current year, we have received 34 moves higher compared to 6 lower in the past 30 days.
The Zacks Consensus Estimate for this year is up 29 cents for fiscal 2012, to $1.02. That would be a 57% improvement over last year. Next year’s forecasts are up 40 cents to average $1.24, which is a 22% growth rate.
Valuations are not NVIDIA’s strong suit, but given the earnings momentum shares are not at too much of a premium. The forward P/E is about 18 times, not bad for a specialty tech company. Take those growth rates into consideration and you have a PEG of 1.3 times, not a discount but not overpriced either.
The Chart
That surge that began in early 2011 can be attributed to the Consumer Electronics Show. A series of announcements about uses for NVIDIA’s products came out, ranging from uses in BMWs and Teslas to a $1.5 billion cross-licensing fee from Intel.
Since all the excitement though, shares have cooled, forming a nice level of support and a great entry point.
Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Small Cap Trader service
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