Looking for a stock that’s trading close to its 52-week low with opportunities for improvement? If yes, then take a look at Fairchild Semiconductor Intl Inc (NYSE:FCS). The company missed earnings estimates in its recently reported first quarter, but management’s commentary over the conference call suggests that things could improve as the year progresses.
Better days ahead
Fairchild’s business is steadily gathering momentum and this reflected on its top line performance in the previous quarter. It posted revenue of $343.2 million, ahead of the $340.9 million consensus estimate. In addition, the company guided for revenue in the range of $355 million to $375 million, which is easily ahead of the $359 million consensus estimate at the mid-point.
A slew of catalysts
The industrial business is finally picking up speed after enduring inventory corrections last year, and Fairchild’s design wins in this sector should help revenue climb further. This segment accounts for 36% of Fairchild’s top line, and the company remains positive about its prospects going forward. Sales of Fairchild’s power modules grew 8% in the previous quarter on a sequential basis and this growth should continue as the company has a strong backlog in place.
As far as the automotive business is concerned, it’s not surprising that Fairchild Semiconductor Intl Inc (NYSE:FCS) is expecting better times ahead. The automotive market has been on a roll this year, as sales of new vehicles clocked 1.45 million in March, the highest in the last six years. The underlying strength of the automotive market helped Fairchild grow sales in this segment 26%. Increased adoption of Fairchild’s cutting-edge powertrain solutions has led to more design wins for the company, and we should see their positive effects in the coming quarters.
Coming to the mobile segment, which accounts for 27% of total revenue, things seems even better. The company was able to grow sales in this segment in the first quarter despite seasonality. It’s well-known that Fairchild is dependent on Apple Inc. (NASDAQ:AAPL) and Samsung for its mobile revenue, and this is certainly a good advantage to have.
Management remarked that it has landed design wins in new smartphones and tablets, including Chinese OEMs, and this helped it beat seasonality despite the weakness of its “leading customer.” Such diversification in the mobile business protects Fairchild Semiconductor Intl Inc (NYSE:FCS) from the changing fortunes of OEMs, apart from helping it find spots inside the best that the mobile device market has to offer.
For instance, the company had supplied Apple with five chips for the newest iPads, including the mini. Now, as Apple prepares to launch the next iterations of these devices, Fairchild should continue to see better performance from its mobile segment.
The next iPad mini is expected to be fitted with a retina display, and is one of the most anticipated devices this year. It seems that the mini version of the iPad is now much more in demand than its elder sibling, and this should help it create new records when it’s launched. Apple Inc. (NASDAQ:AAPL)’s iPad mini was certainly a great move by the company as it helped it grab a pie of the smaller form factor tablet market. And a retina display should do wonders for it later this year, and fill up Fairchild Semiconductor Intl Inc (NYSE:FCS)’s coffers in the process.
Moreover, as reported by Reuters, Samsung is Fairchild’s largest customer, and this should enable it to profit from the Korean giant’s continued advancement in the tablet market. After doubling its tablet share last year, the proliferation of Android tablets could be a boon for Samsung, and it might double its share once again this year, according to Jeff Orr of ABI Research.
However, as Orr points out, competition from other Android tablet manufacturers could slow down Samsung’s advance, and this is where Fairchild’s Apple account will come into play. Moreover, Fairchild Semiconductor Intl Inc (NYSE:FCS)’s management is excited about the advent of wearable computing devices, and believes that the company has the expertise to satisfy the power demands of such devices.
Whether Fairchild is hinting at Apple’s rumored iWatch or one of Samsung’s moves into this arena is still unclear, but we should surely keep an eye on this wearable computing development at Fairchild as it could be a major opportunity.
Why invest
Although the company missed on the bottom line in the previous quarter, posting a loss of $0.02 a share while analysts expected profit $0.04, things should get better on this front. Gross margin is expected to be around 30%-31% on the back of higher factory utilization and a better product mix, up from 28% in the previous quarter.
Thus, with the stock trading tantalizingly close to its 52-week low, investors should think of initiating a position in Fairchild. A diversified business and growth in end-markets indicate that it might prove to be a winning investment.
The article Don’t Miss This Stock Trading Near its 52-Week Low originally appeared on Fool.com and is written by Harsh Chauhan.
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