Advertisement
Markets

National Semiconductor's Chips Are Hip

A surprisingly good earnings report helped send this chipmaker's shares higher.

Last June, National Semiconductor gave each of its 8,500 employees a video Apple iPod as a reward for the company's most successful fiscal year. This time around, the Santa Clara, Cal., chipmaker might want to pre-order some iPhones for its workers.

National makes the silicon guts that help mobile devices, such as the widely anticipated iPhone, squeeze as much juice as possible from their batteries. The company's main business is producing semiconductors called analog power management chips. "National's long lead in this area and excellent intellectual property has made it the company to beat when it comes to power management," says Morningstar analyst Erik Kobayashi-Solomon. National's chips are also used in flat-panel display screens, computers and high-definition television sets.

Advertisement - Article continues below

Shares of National Semiconductor got a jolt with the company's latest earnings release. The stock (symbol NSM) surged 14.7%, to $29.58, on June 8 after the company reported that increased orders and stronger profit margins helped it post better-than-expected earnings for its fiscal fourth-quarter, which ended May 27. The company also approved a plan to buy back more than $1.5 billion of its stock over the next 12 months.

After such a big share-price run-up, is National Semi still worth buying? Many analysts think the stock has more room to run. Strong sales and earnings from products launched in the past three years and growing demand from companies that make wireless devices mean that National can sustain its high profit margins, says UBS analyst Uche Orji, who also cited the robust share buyback product in upgrading the stock from "neutral" to "buy" on June 8. He thinks the shares are worth $32.

Raymond James analyst J. Steven Smigie is even more bullish. The stock trades at 25 times the $1.19 per share that analysts, on average, expect the company to earn in the fiscal year that ends next May. Because of improving profit margins and share buybacks, Smigie thinks the stock could be re-valued to trade at 27 times earnings. He has a $38 target price and rates the stock a "strong buy."

Chip stocks are volatile. The cyclical nature of the semiconductor industry leads to erratic earnings. A favorable product mix gives National Semi some protection. As a maker of analog chips, it is not as dependent on cutting-edge manufacturing techniques as are makers of digital chips, says Kobayashi-Solomon. But the company is highly dependent on the fickle mobile-phone market. National Semi's prospects are bright for the moment, but it's difficult to predict its fortunes beyond the next year.

Advertisement
Advertisement

Most Popular

What Trump's Payroll Tax Cut Will Mean for You
Tax Breaks

What Trump's Payroll Tax Cut Will Mean for You

President Trump issued an executive order to suspend the collection of Social Security payroll taxes. How much could it save you?
August 13, 2020
5 Tips to Minimize Your Taxes in Retirement
tax planning

5 Tips to Minimize Your Taxes in Retirement

Don’t pay more than you have to. It all starts with a thorough understanding of the basics of how retirement income is taxed.
August 2, 2020
10 Things to Know Before Going to the Hospital (from a Legal Perspective)
personal finance

10 Things to Know Before Going to the Hospital (from a Legal Perspective)

A trip to the ER can be chaotic and scary, but getting your ducks in a row now can definitely help.
August 11, 2020

Recommended

The Strange Psychology of COVID-19 and Investor Behavior
investing

The Strange Psychology of COVID-19 and Investor Behavior

Investors have a new set of behavioral trapdoors to avoid. Knowing what these unconscious, and often irrational, tendencies are, and why we sometimes …
August 11, 2020
The Scary Costs of Fight-or-Flight Investing
investing

The Scary Costs of Fight-or-Flight Investing

Understanding the fear factors that trigger dire moves can help you stick with your plan.
August 11, 2020
The 7 Types of Financial Procrastinators: Which One Are You?
investing

The 7 Types of Financial Procrastinators: Which One Are You?

The pursuit of investment perfection drives far too many people into getting nothing done, and that comes at a cost.
August 10, 2020
Invest Your Conscience with Ethical Trading Apps
investing

Invest Your Conscience with Ethical Trading Apps

From Betterment to Ellevest and Weathsimple, socially responsible investing apps are gaining steam. And those worried they’d have to sacrifice returns…
August 8, 2020