Xilinx Inc. shares are headed for their fourth post-earnings drop in as many quarters, prompting analysts to hope this is the last time the company will reset its bar lower.
Though the company topped earnings expectations for its fiscal third-quarter in a late Tuesday report, it issued a disappointing forecast for the current period while announcing that it would be cutting 7% of its staff.
“While we assumed management’s original implied March guidance was out of reach, this miss was worse than expected,” wrote Susquehanna’s Christopher Rolland.
was off 9% in midday trading during a down day for the Philadelphia Semiconductor Index
Xilinx’s results came alongside a downbeat report for Advanced Micro Devices Inc.
“Specifically, Xilinx threw cold water on the broader 5G infrastructure ramp, spoke of slowing in its wired business, and once again noted that growth in datacenter is taking longer to materialize,” wrote Raymond James analyst Chris Caso, who rates the stock at market perform.
Caso argued that Xilinx’s market commentary seems to be “directionally correct,” pointing to remarks on how wireless growth outside of China hasn’t really started, he thinks that the company set “imprudently aggressive expectations” beginning at its analyst day last spring. “The good news is that the bar has now been reset, and lower expenses will provide a basis for earnings growth once business does begin to improve,” he wrote.
Evercore ISI analyst C.J. Muse wrote that the latest results and commentary suggest that Xilinx is now unlikely to sport a double-digit compound annual growth rate on its top line into fiscal 2021, as is the company’s target, but he sees the restructuring plan as a “silver lining” that could help the company meet the consensus forecast for fiscal 2021 earnings growth.
“Thus, while an obviously disappointing report, shares in the after-market trade 20 times our depressed FY21 [free-cash flow] outlook—not that expensive considering a Data Center story that remains intact combined with expectations for double-digit growth to continue in the company’s traditional core verticals,” wrote Muse, who rates the stock at outperform with a $115 target price.
Susquehanna’s Rolland wrote that the Huawei ban appears to have a disproportionate impact on Xilinx compared with industry peers, since the company is “essentially shipping nothing into Huawei” while Maxim Integrated Products Inc. “may be shipping (optical and analog) to distributors, who are shipping into module makers, who may be shipping into Huawei.”
He doesn’t see that situation resolving soon, but he’s hopeful that this is the last time Xilinx will reset expectations lower, writing that “while we assumed management’s original implied March guidance was out of reach, this miss was worse than expected.”
Rolland has a positive rating on Xilinx shares, though he lowered his price target to $115 from $120.
Xilinx’s Wednesday slide has put the stock in negative territory on a three-month basis, with shares down 3% over that span. The S&P 500
has added 8% over a three-month period, while the Philadelphia Semiconductor Index is up 13%.