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Beware This Semiconductor Stock's 'Unsustainable' Valuation, Says Analyst
Valued at $6 billion, Lattice Semiconductor Corp. (LSCC) is a mid-cap semiconductor company that develops silicon-based and silicon-enabling products, development hardware, evaluation boards, related intellectual property licenses, services, and sales. It also offers software tools, ultra-low power FPGAs, video-connectivity FPGAs, and control and security FPGAs.
Headquartered in Oregon, the company has operations across Asia, North America, and Europe.
LSCC stock has been a significant underperformer in 2024, with the shares down 38% this year, compared to the broader market's gain. In fact, Lattice shares are down around 20% in just the past week after reporting its Q2 results - but the stock still trades at a premium valuation, warns one analyst, which means investors may want to avoid buying the dip.
Disappointing Results for Lattice
The semiconductor company reported its Q2 results in late July, where revenue of $124.1 million fell 34% year over year to arrive below analysts' $130 million estimate. Profit for the quarter came to $22.6 million, or $0.23 per share - down sharply from EPS of $0.53 reported in the same quarter last year, while also missing estimates of $0.24 per share.
CEO Esam Elashmawi cited “cyclic industry headwinds” and “a period of inventory normalization” as the reasons behind the soft Q2 results, while CFO Sherri Luther highlighted Lattice's stable gross margins and “disciplined spending.”
For the current quarter, management expects Q3 revenue in the range of $117 million to $137 million. At the midpoint, that indicates an expected 33.85% fall from last year.
LSCC stock tumbled 9.4% on the day of the results as investors reacted to the Q2 miss and light Q3 guidance.
Lattice Stock Loses Its ‘Strong Buy’ Status
Bank of America (BAC) wasn't too impressed with Lattice after earnings, either - or the underperforming stock's forward price/earnings multiple of 45.13x, which is roughly double the tech sector median.
Wall Street now has a consensus “Moderate Buy” rating for LSCC, down from a “Strong Buy” average just one month ago, as the stock recently earned a brand-new “Sell” recommendation from BofA. Out of 12 analysts tracking the stock, 8 have a “Strong Buy” rating, 1 has a “Moderate Buy” rating, 2 have a “Hold” rating, and 1 has a “Moderate Sell” rating.
Specifically, last week BofA downgraded the company from “Neutral” to “Underperform,” while also cutting its price target to a new Street-low of $47 - down sharply from the previous target of $83.
BofA analyst Duksan Jang cited the company’s “slowing growth prospect and muted visibility” after earnings, as well as the lack of a near-term catalyst.
”Importantly, growth is now slowing from prior 25%+ sales CAGR to just 10-15% even in an upcycle, and we view the current 40x+ multiple and the 41x 5-yr median as unsustainable,” Jang added.
The mean price target for LSCC is $64.45, signifying an upside potential of 54% from the current market price. The newly cut target from BofA is a premium of just 12.5%.
On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
