If you’ve ever taken an iPhone picture—or read about someone that has—you’ve used a camera that is comprised of parts from these three big companies: OmniVision Technologies, Inc. (NASDAQ: OVTI), Sony Corporation (ADR) (NYSE:SNE), and Larchan Precision. With global cellphone sales topping 1.75 billion units in 2012, and with Apple Inc. (NASDAQ:AAPL) and Samsung together making up 52% of that number, companies like Omnivision, Sony Corporation (ADR) (NYSE:SNE), and Larchan Precision can rest assured there will be plenty more market share to capture.
OmniVision Technologies, Inc. (NASDAQ:OVTI)
This company is the provider of the front-facing camera on the iPhone. OmniVision Technologies, Inc. (NASDAQ:OVTI) designs, develops, and markets semiconductor image-sensor devices worldwide, mainly through its “CameraChip” image sensors. This particular image sensor is a solution for various imaging functions in a smartphone, such as image capture, image processing, signal conversion and output of images and video.
Financial Snapshot
Over the past five fiscal years, ending FY2013 on April 30, 2013, OmniVision Technologies, Inc. (NASDAQ:OVTI) has doubled its gross revenue from $799 million to $1.4 billion. In that same timeframe, it has kept its average gross profit margin above 25%. Cash flow suffered a bit in FY2013 due to a -$163 million change in inventories, which bled $60.6 million in cash off of the balance sheet. That being said, comparing cash to debt, it has $172 million in net cash, which amounts to $3.18 per share.
Outlook
Competition in the cellphone and smartphone market will continue to increase, as the Andriod, iOS, and Research in Motion operating systems joust for hard-to-come-by market share. Because of this, OmniVision Technologies, Inc. (NASDAQ:OVTI) will be called upon to further innovate alongside one or more of these operating systems to satisfy the demands from both the manufacturers and consumers.
Analyst consensus estimates have total revenue climbing to $1.65 billion in FY2015, giving shareholders a forward EPS of $1.85. With these numbers, OmniVision Technologies, Inc. (NASDAQ:OVTI) shares are only trading at 9 times 2015 expected earnings. If we were to price the stock at the forward earnings multiplier of the S&P 500 (14.85 times forward earnings), we can put a price tag of $27.50 on this stock. This price target represents a 63% premium over July 24, 2013 closing price for the stock.
Sony Corporation (ADR) (NYSE:SNE)
Sony Corporation (ADR) (NYSE:SNE) is a multibillion-dollar global electronic equipment, instrument, and device developer and manufacturer. It wasn’t until 2011 where a company, IHS iSuppli, took apart the camera aperture in the phone in an attempt to find whom the OEM of the camera was. What they found was OmniVision Technologies, Inc. (NASDAQ:OVTI)’s technology, coupled with Sony Corporation (ADR) (NYSE:SNE)’s imaging sensor, as the backbone behind the camera lenses.
Financial Snapshot
Sony Corporation (ADR) (NYSE:SNE) continues to be a revenue-generating behemoth, bringing in just over $67 billion for fiscal year 2013, which ended in March. This is a 4.7% increase over the prior year, and the first up-tick in year-over-year growth since their 2008 fiscal year. Gross profit margins have kept above the 20% mark over the past three years, and their EBITDA margin rose from 4% in FY2012 to 4.4% in FY2013. On a great financial note, it has turned a prior year loss of $4.5 billion into a net income of $429 million.
Outlook
The stock has been on an upward swing for all of this trading year. It has climbed 100% since January, and it seems to not want to slow either. The reason behind this is where analysts have pegged year-over-year revenue growth, at 9.84%, which is double that of the prior year. By FY2016, analysts estimate Sony will bring in over $76 billion in revenue and $1.18 EPS.
Even with its products represented in multiple cellphones and smartphones, it is virtually impossible for an uptick in global mobile phone sales to affect Sony’s top line to the point to make it an explosive growth story. With that being said, if it keeps its current trading multiple, Sony could trade as high as $50.00 per share.
Conclusion
For investors seeking to play the smartphone camera market, my focus would be on the smaller suppliers, namely OmniVision. Investing in its stock will give focused exposure to a growing industry. By supplying one of the world’s leading smartphone makers, Apple Inc. (NASDAQ:AAPL), it is poised to curb market risk by continuing innovation, and could offer a significant rate of return should they expand their reach into Apple Inc. (NASDAQ:AAPL) products.
Michael Mandala has no position in any stocks mentioned. The Motley Fool recommends Apple. The Motley Fool owns shares of Apple. Michael is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
The article Take a Picture of These Great Stocks originally appeared on Fool.com is written by Michael Mandala.
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