MACOM (MTSI) Prices $400M Senior Notes, Strengthens Balance Sheet

MACOM Technology Solutions Holdings (NASDAQ:MTSI), Inc. MTSI recently announced the pricing of $400 million principal amount of 0.250% convertible senior notes due 2026.

The sale of the notes is expected to close on Mar 25, 2021, subject to customary closing conditions.

The notes will be offered to qualified institutional buyers only and in accordance with Rule 144A under the Securities Act of 1933, as amended. The company intends to give the initial purchasers an option to buy up to an additional $60 million aggregate principal amount of notes.

The company expects to use the net proceeds from this offering to repay its outstanding term loans partially.

Cash Position

At the end of first-quarter fiscal 2021, MACOM’s cash equivalents and short-term investments totaled $354.8 million, up from $333.1 million as of Oct 2, 2020.

Long-term debt obligations, excluding the current portion, were $650.9 million in the fiscal first quarter compared with $652.2 million in the previous quarter.

MACOM generated $34.8 million of cash from operations in the fiscal first quarter compared with $74.4 million in the prior quarter.

Moreover, the company generated free cash flow of $31.9 million in the quarter compared with $69.5 million in million in the prior quarter.

In our view, the stock offering is expected to boost financial flexibility and help MACOM meet financial obligations in an efficient way. Moreover, the latest move provides it with ample scope to deploy capital for long-term growth opportunities and reward stockholders with higher returns.

Share Price Performance

MACOM has returned 212.1% in the past year, outperforming the industry’s 97.6% rally and the S&P 500’s rise of 61.6%.

Bottom Line

MACOM is benefiting from solid momentum across data center and telecom markets. Also, proliferation of cloud services is benefiting both domestic and international deployments of the company. Additionally, high-performance analog components such as TIAs, CDRs and drivers, which are required in 100G deployment, are strengthening the company’s presence in the data center market further.

The company remains optimistic about strong 5G network deployments, rising demand for its RF and microwave products, strength across defense applications and growing data center traffic. These are expected to continue driving its top-line growth in the near term.

Zacks Rank and Stocks to Consider

MACOM currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the broader computer and technology sector are KLA Corporation KLAC, TE Connectivity Ltd (NYSE:TEL). TEL and Mettler-Toledo (NYSE:MTD) International, Inc. MTD, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rates for KLA, TE Connectivity and Mettler-Toledo are projected at 11.6%, 10.4%, and 13.8%, respectively.

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