Shares of wireless chip maker Triquint (TQNT) are up 8 cents, or 2%, at $4.11 after D.A. Davidson’s Aalok Shah raised his rating on the stock to Buy from Neutral, writing that the stock’s valuation is “too cheap” to ignore, and that there are product catalysts on the horizon.
Triquint trades at 8 times his 2011 estimate of 51 cents per share, which is in line with consensus estimates, and 14 times his 2012 estimate for 28 cents, which is below the consensus 35 cents. Shah has an $8 price target on the stock, or 1.5 times book value of $5.30 per share at the end of Q3.
Triquint shares have fallen roughly 40% since the company on October 26th reported disappointing Q3 results and forecast revenue to be flat this quarter with last quarter’s level as it burns off excess inventory and struggles with a “weak product mix.”
The company has parts in Apple’s (AAPL) iPhone 4S, but it has not had as much success with phones based on Google’s (GOOG) Android operating system, CEO Ralph Quinsey said during the Q3 conference call.
Shah thinks the company’s gross profit margin will continue to suffer as it ramps up production of new chips, which is going to put further pressure on gross profit margin. Margin contracted 5 percentage points last quarter, to 36%, and Shah thinks it may go as low as 30%, even lower than the company has forecast, for “several quarters.”
However, he is also enthusiastic that the company is winning business at Qualcomm (QCOM) with its “multi-mode power amplifier,” or MMPA.
“We believe this should translate into revenue beginning in Q2�12,” he writes.
He also sees Triquint being willing to cut prices to move units: “The company has stated that it will fill capacity through being aggressive on price for low-end PAs for the GSM market. Lastly, our estimates are conservative.”
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