Why Is Maxim (MXIM) Down 2.7% Since Last Earnings Report?

A month has gone by since the last earnings report for Maxim Integrated Products (MXIM). Shares have lost about 2.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Maxim due for a breakout? 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 drivers.

Maxim Q1 Earnings & Revenues Beat Estimates

Maxim Integrated Products reported first-quarter fiscal 2020 adjusted earnings of 52 cents per share, which surpassed the Zacks Consensus Estimate by 3 cents. Notably, the figure declined 30.7% year over year and 8.8% on a sequential basis.

Revenues of $533.04 million surpassed the Zacks Consensus Estimate of $531 million and came within the company’s guided range of $510 million to $550 million. However, the figure declined 16.5% and 4.2% from the year-ago quarter and previous quarter, respectively.

This can be attributed to sluggish demand environment, which impacted the company’s end-market performance in the industrial, automotive, consumer and, communications and data center markets.

End-Market in Detail

Industrial: The company generated 30% of total revenues from this market during the reported quarter. Revenues in this market declined 21% from the prior-year quarter owing to weak market and demand conditions.

Automotive: This market accounted for 27% of the company’s revenues during the fiscal first quarter. Further, revenues were down 4% on a year-over-year basis, which was primarily owing to slowdown in the global auto production.

Nevertheless, Maxim witnessed continued momentum across driver assistance in electric vehicle content in the reported quarter.

Consumer: Maxim generated 24% of revenues from this market. Revenues in this market declined 19% year over year, thanks to sluggishness in the smartphone market. Notably, smartphones accounted for 35% of the company’s consumer business during the reported quarter.

However, the company witnessed lower magnitude of decline in Samsung smartphone revenues than expected. Further, improved performance of the company’s tablets, wearables and peripheral businesses remained positive.

Communications and Data Center: Revenues from this market which now includes computing accounted for 19% of the total revenues, declining 25% from the year-ago quarter. This was due to sluggishness in communications infrastructure space.

Nevertheless, the company witnessed improved demand for its 100G laser driver products required for data center applications.

Operating Details

Non-GAAP gross margin was 64.8%, contracting 350 bps from the year-ago quarter.

Non-GAAP operating expenses of $185.1 million decreased 4.7% year over year. However, as a percentage of revenues, the figure expanded 430 bps from the prior-year quarter.

Per the company, operating margin came in 29.3%, down from 36.7% in the year-ago quarter.

Balance Sheet & Cash Flow

As of Sep 28, 2019, cash, cash equivalents and short-term investments were $1.8 billion, compared with $1.9 billion as Jun 29, 2019.

Further, long-term debt was $992.9 million at the end of fiscal first quarter compared with $992.6 million at the end of fiscal fourth quarter.

During the quarter under review, cash flow from operations was $141.3 million, down from $237.5 million in the previous quarter. The company utilized $21 million for capital expenditure during the fiscal first quarter.

Further, trailing 12-month free cash flow was $725 million, down from $793 million in the fiscal fourth quarter.

Further, Maxim spent $94 million in repurchasing shares and made dividend payment of $130 million (48 cents per share).

Guidance

For second-quarter fiscal 2020, earnings per share are expected in the range of 49-57 cents on an adjusted basis.

Further, Maxim expects revenues in the range of $525 million to $565 million.

Non-GAAP gross margin is expected within the range of 64-66%.

Management expects industrial market to exhibit seasonal sequential growth in the fiscal second quarter. Moreover, the company is likely to experience stabilization in the run rate of bookings and lead times.

Further, automotive market is expected to improve from the fiscal first quarter backed by growth in driver assistance and battery management system content. Further, Maxim’s infotainment business is expected to perform well.

Maxim expects to experience sequential growth in revenues from communications and data center market. Further, the company is likely to witness solid demand for 25G optical products, which are essential for 5G base station applications. It also anticipates growth in 100G laser drivers shipments that are required in data centers.

However, revenues in consumer market are anticipated to be significantly down from that in the fiscal first quarter due to unfavorable timing of holiday shipments for consumer electronics.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended upward during the past month.

VGM Scores

Currently, Maxim has a subpar Growth Score of D, however its Momentum Score is doing a bit better with a C. Charting a somewhat similar path, 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 F. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending upward for the stock, and the magnitude of these revisions looks promising. Notably, Maxim has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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