Maxim Integrated (MXIM) Up 6.5% Since Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Maxim Integrated Products, Inc. (NASDAQ:MXIM) . Shares have added about 6.5% in that time frame.

Will the recent positive trend continue leading up to its next earnings release, or is MXIM due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts.

Maxim (MXIM) Earnings and Revenues Beat Estimates in Q3

Maxim Integrated reported third-quarter fiscal 2018 adjusted earnings of 73 cents per share, surpassing the Zacks Consensus Estimate by 4 cents. Also, earnings increased 13% sequentially and 31% from the year-ago quarter.

Revenues

Revenues of $649 million increased 4% sequentially and 12% year over year. The increase was driven by major strength in the automotive and industrial end markets.

The top line was within the company’s guided range of $620-$660 million but came in above the Zacks Consensus Estimate of $641 million.

Revenues by End Market

The revenue mix in terms of major markets is discussed below.

The Industrial end market remained the largest revenue contributor, accounting for approximately 27%. The segment’s revenues increased from the prior-year quarter, driven primarily by factory automation products, content growth in medical and broad market initiatives.

Consumer end market, Maxim’s second-largest segment, also generated 31% of the revenues, up year over year. The increase was due to an above average flagship smartphone shipments and growth in broad-based consumer business.

The Communications and Data Center end market accounted for 19% of the revenues, flat from the year-ago quarter. The robust growth of 100G optical products was offset by broad-based softness in communications infrastructure.

The Automotive end market generated 20% of revenues. The segment’s revenues grew in double digits year over year. The increase was driven by growth in infotainment content. Power management products for infotainment applications helped in strengthening customer relationships in automotive and earning new design wins. The Computing business contributed the remaining 3%.

Margins

Non-GAAP gross margin was 67.2%, down 40 basis points (bps) sequentially but up 200 bps from the year-ago quarter. The year-over-year increase was due to higher revenues, a favorable mix and strong operational execution.

Non-GAAP operating expenses of $195.7 million increased 5% year over year. Operating margin was 37.1%, up 410 bps from the prior-year quarter. The improvement was driven by revenue growth and manufacturing transformation.

Balance Sheet & Cash Flow

During the reported quarter, cash flow from operations was $223 million compared with $229.9 million in the prior quarter. Important usages of cash in the quarter included $17 million on capex, $128 million for share repurchases and $1118 million paid as dividends.

Total cash, cash equivalents and short-term investments were $2.72 billion in the fiscal third quarter, up from $2.82 billion in the last reported quarter.

Guidance

For the fiscal fourth quarter, Maxim expects revenues in the range of $610-$650 million based on a quarter-end backlog of $436 million. The Zacks Consensus Estimate is pegged at $647.4 million.

Gross margin is expected within 66-68% on an adjusted basis (excluding special items). Earnings per share are expected in the range of 67-73 cents on an adjusted basis. The Zacks Consensus Estimate stands at 70 cents.

Going Forward

For the upcoming fiscal fourth quarter, the company expects the automotive market to grow sequentially, driven by power management products for infotainment, continued momentum in battery management system business and ADAS products. The industrial market will be up sequentially and from the year-ago quarter, driven by strength in factory automation content. Also, the Communications and Data Center market is likely to be up in the upcoming quarter, driven by 100G optical products for high-speed rack to rack connectivity. However, Consumer revenues are expected to decrease in the quarter ending June, due to significantly lower unit shipments of flagship smartphone products, partially offset by growth in tablets and wearables.

Maxim’s automotive business has been growing lately. The company has invested heavily in vehicle-safety technology that could prove to be foundational for a driverless car future. Maxim’s ASIL compliant battery management system is gaining strong adoption in the industry.

Maxim remains financially strong with convincing margin expansion opportunities through its cost-saving initiatives and R&D focus on high-return investments. The company is expanding its manufacturing footprint to enhance flexibility and profitability, while lowering capital expenditure. Management also plans to optimize product lines and organization for better returns on R&D investments. These efforts are likely to enable Maxim in improving future utilization rates, reducing costs and improving gross-margin performance.

Maxim is shifting to advanced node process technology development through a recent collaboration with its foundry partners. Products launched under this initiative should expand its margins.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. There have been three revisions higher for the current quarter compared to five lower.

VGM Scores

At this time, MXIM has a nice Growth Score of B. Its Momentum is doing a bit better with an A. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Our style scores indicate that the stock is more suitable for momentum investors than growth investors.

Outlook

Estimates have been broadly trending downward for the stock and the magnitude of these revisions indicates a downward shift. Interestingly, MXIM has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.