Conclusion: Atheros is benefiting from solid execution, strong near-term business conditions, and the potential to continue to drive significant earnings leverage. With the addition of multiple new product cycles, the company should provide strong growth during the next couple of years, and the stock should continue to advance. We maintain our Overweight-V rating.
What's New: The company delivered a $0.04 positive EPS surprise on revenues that were in line with our estimate. A better than expected gross margin of 46.7% combined with tight expense controls to drive the positive surprise. In addition, to providing significant operating leverage, the company’s balance sheet reflected management’s solid execution. Finally, the company provided a better than expected outlook for the March quarter.
Implications: We have increased our above consensus 2006 revenue and EPS estimates to $266 million and $0.55, respectively. Additionally, our 2007 revenue and EPS estimates have increased to $336 million and $0.80, respectively. Finally, we have increased our price target to $24 from $20, and we believe that additional upside is possible as the company benefits from their strong revenue and earnings growth potential during the next few years. |
