ZRAN - Strong quarter and guidance, share gains & product cycles on track - Goldman Sachs - October 23, 2007
What's changed
Zoran reported CY3Q revenues of $146.4 mn (up 12.7% qoq), well above our and the Street’s estimate of $138.4 mn (up 6.6% qoq). EPS (including ESOs) of $0.44 was $0.12 above the GS estimate of $0.32 driven by higher revenues, slightly better gross margin, lower OpEx, lower taxes, and lower share count. Pro forma EPS (excluding ESOs) of $0.51 was $0.12 above the consensus estimate of $0.39. CY4Q revenues were guided to be $128 to 132 million (down 10-13% off a higher base), compared with our original estimate of $130 mn and consensus at $128 mn. EPS inc./ex ESOs was guided to be in the range of $0.23-0.27/$0.30-0.34, about $0.03 above GS (inc. ESOs) of $0.22 and $0.02 above consensus (ex ESOs) at $0.30.
Implications
We are increasing our 2007/08/09 EPS estimates to $1.08/$1.15/$1.30 from $0.90/$1.05/$1.20, on strong revenue momentum, slightly better gross margin, and lower expenses. We believe that Zoran continues to execute on share gains in its core markets of DVD and digital cameras as it drives cost reductions to compete in highly commoditized markets. In addition, we think the company is showing good traction with its new digital TV and handset products that can help sustain its revenue growth trajectory. We look for several catalysts to drive shares higher over the next six months, including evidence of additional digital TV design wins, further progress with handset customers, and the potential announcement of a new product for high-definition DVD players.
Valuation
We are increasing our 12-month price target to $25 from $23, which is based on a 22X multiple of our 2008 EPS estimate of $1.15 (inc. ESOs).
Key risks
The primary risks to our view are greater than expected price erosion for digital camera and DVD chips, excess inventory in the supply chain, and a lack of traction with digital TV or handset products. |
