HQ:ST BUY,Focus List,bookings grew 30% qoq
Date: 7/21/00
Another quarter of high growth with total consistency
* MCRL reported $0.19 in June, 2 cents ahead of our estimate of $0.17
* Revenues grew 13% qoq, rising mix to high-speed products drove 110bps qoq GM
improvement
* MCRL deftly offset a drop in wireless with growth in computing and industrial
* New product introductions accelerating (especially high-bandwidth products)
* Outlook strong - bookings grew 30% qoq, leadtimes out to 1 quarter
* Raising our CY00E estimate to $0.79 (from $0.67) and CY01E to $1.05 (from
$0.85)
* MCRL continues to be an excellent core holding over the near- and long-term
* Raise to STRONG BUY rating, remains on the FOCUS LIST list
2000 E Previous Est 2001 E Previous Est
Q1 EPS $0.15 $0.15 $0.24 $0.19
Q2 EPS 0.19A 0.17 0.26 0.21
Q3 EPS 0.21 0.17 0.27 0.22
Q4 EPS 0.23 0.18 0.28 0.23
FY EPS 0.79 0.67 1.05 0.85
FY REVS (M) 323 303 435 397
CY EPS 0.79 0.67 1.05 0.85
CY P/E 66x 78x 50x 61x
FY Ends Dec Current Price $52
52-Week Range $17-66 Market Cap (B) $4.9
Shares Out (M) 94.3 Book Value/Share $2.05
Net Cash/Share $0.80 3-Year EPS Gth 43%
CY01E P/E-to-Gth 1.2BUY MICREL NOW
High growth, low risk. Micrel is one of the fastest growing high-performance
analog companies in our universe. We currently estimate the company will grow
top-line in CY00E and CY01E at 66% and 35%, respectively. In addition, we are
also estimating impressive bottom-line growth at 90% in CY00E and 34% in
CY01E. While Micrel doesn't formally break out Synergy revenue, we estimate
that Synergy revenue represented over 25% of Micrel's Q2 total revenue (up
from 5% in Mar-99). In addition, the proprietary, diversified nature of
Micrel's revenue stream gives the Company un-matched quality of earnings. For
example, despite wireless handset weakness in Q2 stemming from CDMA/Korean
exposure, Micrel was able to mitigate this shortfall and make up the
difference with upside in other endmarkets (e.g., computer, communications
(Synergy) and industrial).
Micrel is currently trading 20%+ off recent highs despite improved
fundamentals (e.g., record bookings and backlog) and better outlook in 2H00E.
At 50x our revised CY01E earnings of $1.05, MCRL's valuation comprehends its
leadership position within high performance analog; however, the multiple is
low relative to Synergy comparables (see Exhibit 1). With an un-matched record
of high growth with total consistency and strong momentum in high-speed
communications products, we believe Micrel's valuation will continue to expand
relative to comparables (see Exhibit 2).
MCRL is our favorite mid-cap name and continues to be an excellent core
holding over the near- and long-term. Raise to STRONG BUY rating and remains
on the FOCUS LIST.
Exhibit 1Valuation Comparison
Source: Chase H&Q and Firstcall estimates.Exhibit 2
Consistency 101: MCRL Financial Track recordSource: Company reports.
VISIBILITY IS AT RECORD LEVELS, RAISING ESTIMATES
Company management is currently guiding for another double-digit sequential
revenue growth quarter in Q300E (in the range of 12% - 15%), following
sequential revenue growth of 13% in Q2, 12% in Q1, 20% in Q499 and 13% in
Q399, respectively. We are modeling revenue growth in the middle of guidance
at 13% or $86.0 million in Sep-00E, with net margins slightly higher at 58.0%.
We are revising up our Sep-00E quarterly estimate 24% to $0.21 and are raising
CY00E EPS to $0.79 (from $0.67) and CY01E EPS to $1.05 (from $0.85) to reflect
the favorable economic environment and record backlog. This quarter marks
the 7th time in a row that Chase H&Q has raised estimates on Micrel.
Exhibit 3
MCRL's Revenue by End-marketsSource: Company reports.JUNE- 00 REVIEW
MCRL reported EPS of $0.19 in June, 2 cents above our estimate of $0.17, up
104% yoy and 24% sequentially, on revenue of $75.8 million. Revenue growth of
72% yoy and 13% sequentially was exceptionally strong due to robust demand
from all endmarkets the company sells into (especially high-speed
communications and wireless handsets). Backlog entering Q3E reached an all
time high and turns-filled business remained constant with Q1 levels at 20%
during Q2. Leadtimes stretched to 8-10 weeks in Q2 (up from 8 weeks in Q2).
The company estimates that 32%, 26% and 16% of total sales in the quarter were
generated from the computing, high-speed communications products and wireless,
versus 31%, 21% and 25% in Q1, respectively. Gross margins came in at 57.8%,
an impressive 110bps increase over March levels as a result of a better
product mix (i.e., higher Synergy sales) and the realization of manufacturing
efficiencies (especially in high-performance analog products). Going forward,
MCRL continues to aggressively add capacity to accommodate increasing demand,
particularly for high-bandwidth communications products. In fact, MCRL plans
to spend $75-80 million in capex during 2000E ($26 million in 1H00), more than
double the $33 million spent in 1999. To put this in perspective, Linear
Technology (LLTC, $65, BUY), which is roughly three times the size of MCRL, is
currently forecasting roughly $120 mn in capex for 2000E. |
