Competition Dents the Outlook of These Stocks: Advanced Micro Devices, Inc. (AMD), Altera Corporation (ALTR), Xilinx, Inc. (XLNX)

Given the likelihood for revenue to only modestly outpace OPex growth in CY13, Xilinx is expected to gain share in new product revenues with 28nm market share gains. It trades at a 2x premium to the historical premium vs. the SOX (33.1% vs. historical median of 16.5%) and premium to the SPX (54.2% vs. historical 51.3%). The stock seems to be more than fairly valued at these levels.

Altera Corporation (NASDAQ:ALTR)’s net cash per share exiting C3Q12 was $7.78/share, or roughly 22.1% of the current market cap, below the peer median of 23.2% and below competitor Xilinx, Inc. (NASDAQ:XLNX) at 24.5.% of market cap. The estimated FCF yield of 5.3% for CY13 is 200bps below the peer group estimates and 150bps below Xilinx, Inc. (NASDAQ:XLNX). The dividend yield of 1.1% is at par to peer group (1.1%), and less than half that of competitor Xilinx (2.4%). Despite historically higher gross/operating margins and stronger free cash flows, the Street has a more reserved neutral position on Altera given the deleveraging earnings model, and anticipated underperformance relative to Xilinx in the face of macro headwinds, which are expected to be more detrimental to Altera’s customer/geographical exposure. Shares of Altera Corporation (NASDAQ:ALTR)are currently trading at 20.0x CY13 EPS of $1.76, a 28.2% premium to the historical average of 15.6x. Credit Suisse has set a price target of $32 which represents 18.2x CY13 EPS, a discount to Xilinx at 21.0x

Foolish Bottom-Line

It can be inferred from the discussion stated above that the Street is more bullish on Xilinx than on AMD and Altera due to the fact that both these companies are more exposed to intense competition than Xilinx, Inc. (NASDAQ:XLNX).

The article Competition Dents the Outlook of These Stocks originally appeared on Fool.com and is written by Masam Abbas.

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