7) Semtech Corporation (NASDAQ:SMTC)
Market Cap as of 27th January: $4.54 billion
Return Over Past 6 Months: ~84.0%
Average Upside Potential: ~34.3%
Number of Hedge Fund Holders: 32
Semtech Corporation (NASDAQ:SMTC) is engaged in designing, developing, manufacturing, and marketing analog and mixed-signal semiconductors and advanced algorithms. Roth MKM analyst Scott Searle upped the company’s price target to $75 from $70, keeping a “Buy” rating. As per the analyst, Semtech Corporation (NASDAQ:SMTC)’s $661 million secondary offering offers significant financial flexibility by decreasing interest and leverage ratios while being accretive immediately. Notably, with its management continuing to monetize non-strategic assets, the research firm believes that components of the company’s Sierra Wireless can be sold in H1 2025, further reducing its net debt and allowing it to focus and transform.
Elsewhere, Needham increased the price target of Semtech Corporation (NASDAQ:SMTC) to $74 from $70, maintaining a “Buy” rating. As per the analyst, the company is focused on divestiture and portfolio optimization strategy, and a healthier balance sheet can significantly enhance its negotiating position. Furthermore, Semtech Corporation (NASDAQ:SMTC)’s management is expected to now focus on accelerating revenue growth, expanding margins, and optimizing product portfolio.
Data centers need high-speed and reliable connectivity to support increasing data traffic, mainly considering the rise of AI, cloud computing, and 5G. The company’s Signal Integrity Products allow high-speed data communication, that are important for modern data center architectures. Heartland Advisors, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Technology. Semtech Corporation (NASDAQ:SMTC), which manufactures optical components and technology solutions used in data centers and IoT (Internet of Things) systems, is a position we initiated in the third quarter and increased our exposure to in the fourth.
Semtech, one of our Strategy’s best performers in the past quarter, is an example of a stock we’ve owned in the past and recently returned to as circumstances improved. We last held SMTC a few years ago, before it announced its acquisition of Sierra Wireless. The company levered up in late 2022 to make the purchase. Soon after the deal was completed, the stock sold off and the existing management team was replaced. The new management team is now seeking to divest some of Sierra Wireless’ assets to de-lever and regain focus on Semtech’s core business.
We’ve kept the company on our radar since the acquisition. Semtech’s signal integrity business, the company’s crown jewel franchise, is a backbone component of many data centers. With growing demand for data centers in the AI boom, we believe this could be a real opportunity for the company. New management has been clear they intend to divest non-core business lines to reduce leverage, which should unlock additional value. Yet the stock currently trades at a 20-25% discount to its peers based on EBITDA.”
