BUSINESS
MACOM Technology Solutions Holdings, Inc., together with its subsidiaries, designs and manufactures analog radio frequency (RF), microwave, millimeterwave, and lightwave spectrum products in the United States, China, the Asia Pacific, and internationally. The company offers a portfolio of standard and custom devices, including integrated circuits, multi-chip modules, power pallets and transistors, diodes, amplifiers, switches and switch limiters, passive and active components, and subsystems. Its semiconductor products are electronic components that are incorporated in electronic systems, such as wireless basestations, high density networks, active antenna arrays, radar, magnetic resonance imaging systems, and test and measurement.
INVESTMENT RATING
MTSI’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
MACOM Technology Solutions Holdi has a current Value Trend Rating of D (Negative).
With this rating, PTR’s two proprietary measures of a stock’s current attractiveness are providing very contradictory signals. MACOM Technology Solutions Holdi has a very low Appreciation Score of 10 but a good Power Rating of 72, resulting in the Negative Value Trend Rating.
MACOM Technology Solutions Holdi’s stock is selling significantly above targeted value. The current stock price of $98.98 compares to targeted value 12 months forward of $41.
MACOM Technology Solutions Holdi’s very low appreciation potential results in an appreciation score of 10 (90% of the universe has greater appreciation potential.)
MACOM Technology Solutions Holdi has a Power Rating of 72. (MTSI’s good Power Rating indicates that it has a higher likelihood of achieving favorable investment performance over the near to intermediate term than all but 28% of companies in the universe.)
Contributing to this good Power Rating: recent price action has been favorable. Offsetting factors are the Semiconductor, Related Devices comparison group is in a slightly weakened position currently; and earnings estimate behavior for MTSI has been slightly negative recently.
INVESTMENT PROFILE
MTSI’s financial strength is above average. Financial strength rating is 70.
Relative to the S&P 500 Composite, MACOM Technology Solutions Holdi has moderate Growth characteristics; its appeal is likely to be to Capital Gain-oriented investors; the perception is that MTSI is higher risk. Relative weaknesses include: low historical profitability, high stock price volatility, and high earnings variability. MTSI’s valuation is high: low dividend yield, high P/E ratio, and high price/book ratio. MTSI has unusually low market capitalization.
CURRENT SIGNALS
MACOM Technology Solutions Holdi’s current operations are eroding. Return on equity is falling, reflecting: falling asset utilization; declining pretax margin; falling tax keep rate; and falling leverage.
MACOM Technology Solutions Holdi’s current technical position is very strong. The stock price is in a 11.7 month up move. The stock has appreciated 82.8% from its prior low. The stock price is above its 200 day moving average which is in an uptrend.
ALERTS
MACOM Technology Solutions Holdi (NASDAQ: MTSI) has recently experienced significant negative changes in investment behavior: the stock fell on very heavy volume.
Marginal negative changes in fundamentals have recently occurred for MACOM Technology Solutions Holdi (NASDAQ: MTSI): significant quarterly earnings deceleration occurred.
In light of this new information we are reviewing our current Overall Rating of D. This review will be completed in the next several days.
MACOM Technology Solutions Holdi (NASDAQ: MTSI) has reported E.P.S. of $0.21 for its second fiscal quarter (ending March 31) versus $0.36 for the same period a year ago — a decline of -42%. Relative to the consensus estimate of $0.79, this was a shortfall of $-0.58. For the latest four quarters through March 31, E.P.S. were $0.89 compared to $4.66 a year ago — a decline of -81%.
MACOM Technology Solutions Holdi (NASDAQ: MTSI) stock closed at $98.98 on 5/2/24 after a slight decline of -0.1%. Moreover, exceptionally high trading volume at 212% of normal accompanied the decline. The stock has declined -1.7% during the last week but has been strong relative to the market over the last nine months.
CASH FLOW
In 2023, MACOM Technology Solutions Holdi experienced a significant decline in cash of -$72.0 million (-12%). Sources of cash were lower than uses. Cash generated from 2023 EBITDA totaled +$170.0 million. Non-operating sources contributed +$9.7 million (+6% of EBITDA). Cash taxes consumed -$23.6 million (-14% of EBITDA). Re-investment in the business amounted to -$114.3 million (-67% of EBITDA). On a net basis, debt investors pulled out -$127.1 million (-75% of EBITDA) while equity investors provided +$13.3 million (+8% of EBITDA).
MTSI’s Non-operating Income, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by an opposite trend for the Macom Technology Solutions Holdi Peer Group. In most years, MACOM Technology Solutions Holdi was in the second quartile and lower quartile. Currently, MACOM Technology Solutions Holdi is slightly above median at +6% of EBITDA (+$9.7 million).
MTSI’s Cash Taxes, %EBITDA enjoyed a volatile overall uptrend over the period. This improvement was accompanied by stability for the Macom Technology Solutions Holdi Peer Group. In most years, MACOM Technology Solutions Holdi was in the top quartile and second quartile. Currently, MACOM Technology Solutions Holdi is slightly below median at -14% of EBITDA (-$23.6 million).
MTSI’s Business Re-investment, %EBITDA has enjoyed a volatile overall uptrend over the period. This improvement was accompanied by a similar trend for the Macom Technology Solutions Holdi Peer Group. In most years, MACOM Technology Solutions Holdi was in the third quartile and second quartile. Currently, MACOM Technology Solutions Holdi is below median at -67% of EBITDA (-$114.3 million).
MTSI’s Debt Investors, %EBITDA has experienced a very strong overall downtrend over the period. This downtrend was accompanied by a similar trend for the Macom Technology Solutions Holdi Peer Group. In most years, MACOM Technology Solutions Holdi was in the top quartile and lower quartile. Currently, MACOM Technology Solutions Holdi is lower quartile at -75% of EBITDA (-$127.1 million).
MTSI’s Equity Investors, %EBITDA has suffered a volatile overall downtrend over the period. This downtrend was accompanied by a similar trend for the Macom Technology Solutions Holdi Peer Group. In most years, MACOM Technology Solutions Holdi was in the top quartile and second quartile. Currently, MACOM Technology Solutions Holdi is above median at +8% of EBITDA (+$13.3 million).
MTSI’s Change in Cash, %EBITDA has experienced a downtrend over the period. This downtrend was accompanied by a similar trend for the Macom Technology Solutions Holdi Peer Group. In most years, MACOM Technology Solutions Holdi was in the third quartile and top quartile. Currently, MACOM Technology Solutions Holdi is substantially below median at -42% of EBITDA (-$72.0 million).
MTSI’s Cash, %Revenue has enjoyed a very strong overall uptrend over the period. This improvement was accompanied by stability for the Macom Technology Solutions Holdi Peer Group. (Since 2017 Cash, %Revenue has sharply accelerated.) In most years, MACOM Technology Solutions Holdi was in the third quartile and top quartile. Currently, MACOM Technology Solutions Holdi is upper quartile at +79%.
PROFITABILITY
MTSI’s return on equity has eroded very significantly since 2021. The current level of 7.3% is at the low for the period and is -9.5% from the high.
MTSI’s minor positive trend in pretax operating return significantly offset by a very strong negative trend in non-operating factors is a significant analytical factor.
The productivity of MTSI’s assets declined over the full period 2014-2023: asset turnover has experienced a minor downtrend.
More than offsetting this trend, however, pretax margin enjoyed a volatile overall uptrend but it experienced a very sharp decline after the 2022 high.
Non-operating factors (income taxes and financial leverage) had a significant negative influence on return on equity.
MTSI’s return on equity is at median (7.3%) for the four quarters ended December, 2023.
Operating performance (pretax return on assets) is substantially above median (5.5%) reflecting asset turnover that is lower quartile (0.38X) and upper quartile pretax margin (14.6%).
Tax “keep” rate (income tax management) is at median (81.7%) resulting in after tax return on assets that is substantially above median.
Financial leverage (leverage) is slightly below median (1.61X).
GROWTH RATES
There are no significant differences between MACOM Technology Solutions H’s longer term growth and growth in recent years.
MACOM Technology Solutions H’s historical income statement and balance sheet growth are not available.
Annual revenue growth has been -0.0% per year.
Total asset growth has been 2.2% per year.
Annual E.P.S. growth has been 35.3% per year.
Equity growth has been 6.1% per year. (More recently it has been 34.6%.)
MACOM Technology Solutions H’s consensus growth rate forecast (average of Wall Street analysts) is 11.4% — in line with the average of the historical growth measures.
Relative to the Macom Technology Solutions Holdi Peer Group, MACOM Technology Solutions Holdi historical growth measures are generally top quartile. E.P.S. growth (35.3%) has been upper quartile. Total asset growth (2.2%) has been upper quartile. Equity growth (6.1%) has been upper quartile. Revenue growth (-0.0%) has been above median.
In contrast, consensus growth forecast (11.4%) is at the lower quartile.
PRICE HISTORY
Over the full time period, MACOM Technology Solutions Holdi! stock price performance has been volatile and exceptional. Between July, 2013 and May, 2024, MACOM Technology Solutions Holdi! stock price rose +517%; relative to the market, this was a +106% gain. Significant price moves during the period: 1) September, 2020 – December, 2021: +130%; 2) March, 2020 – July, 2020: +123%; 3) April, 2019 – January, 2020: +105%; and 4) May, 2017 – March, 2018: -73%.
TOTAL INVESTMENT RETURNS
Current annual total return performance of 74.7% is upper quartile relative to the S&P 500 Composite.
In addition to being upper quartile relative to S&P 500 Composite, current annual total return performance through April, 2024 of 74.7% is upper quartile relative to MACOM Technology Solutions Holdi Peer Group.
Current 5-year total return performance of 49.0% is upper quartile relative to the S&P 500 Composite.
Through April, 2024, with upper quartile current 5-year total return of 49.0% relative to S&P 500 Composite, MACOM Technology Solutions Holdi total return performance is upper quartile relative to MACOM Technology Solutions Holdi Peer Group.
VALUATION BENCHMARKS
Relative to S&P 500 Composite, MTSI’s overall valuation is exceptionally high. All five factors are upper quartile. The highest factor is the price/earnings ratio, followed by the ratio of enterprise value/earnings before interest and taxes, then by the ratio of enterprise value/revenue, then by the ratio of enterprise value/assets. The lowest factor is the price/equity ratio.
Relative to MACOM Technology Solutions Holdi Peer Group, MTSI’s overall valuation is quite high. The highest factor, the price/equity ratio, is upper quartile. Ratio of enterprise value/revenue is upper quartile. Ratio of enterprise value/assets is upper quartile. Price/earnings ratio is slightly above median. The lowest factor, the ratio of enterprise value/earnings before interest and taxes, is at the upper quartile.
MACOM Technology Solutions Holdi has a major value gap compared to the median valuation. For MTSI to achieve median valuation, its current ratio of enterprise value/revenue would have to fall from the current level of 12.19X to 1.94X. If MTSI’s ratio of enterprise value/revenue were to fall to 1.94X, its stock price would be lower by $-89 to $10.
For MTSI to fall to lower quartile valuation relative to the MACOM Technology Solutions Holdi Peer Group, its current ratio of enterprise value/revenue would have to fall from the current level of 12.19X to 1.34X. If MTSI’s ratio of enterprise value/revenue were to fall to 1.34X, its stock price would decline by $-94 from the current level of $99.
VALUE TARGETS
MTSI’s future returns on capital are forecasted to exceed the cost of capital. Accordingly, the company is expected to continue to be a major Value Builder.
MACOM Technology Solutions Holdi current Price Target of $41 represents a -59% change from the current price of $98.98.
MACOM Technology Solutions Holdi’s very low appreciation potential results in an appreciation score of 10 (90% of the universe has greater appreciation potential.)
Notwithstanding this low Appreciation Score of 10, the high Power Rating of 72 results in an Value Trend Rating of D.
MACOM Technology Solutions Holdi current Price Target is $41 (+4% from the 2023 Target of $39 but -59% from the 05/02/24 price of $98.98). This plateau in the Target is the result of a +8% increase in the equity base and a -4% decrease in the price/equity multiple. The forecasted increase in cost of equity has a very large negative impact on the price/equity multiple and the forecasted decline in growth has a slight negative impact as well. Partially offsetting these Drivers, the forecasted increase in return on equity has a very large positive impact.
PTR’s return on equity forecast is 23.2% — slightly above our recent forecasts. Forecasted return on equity enjoyed a dramatic, erratic increase between 2015 and 2023. The current forecast is significantly above the 2019 low of 5%.
PTR’s growth forecast is 6.0% — above our recent forecasts. Forecasted growth suffered a dramatic, variable decline between 2018 and 2023. The current forecast is significantly below the 2018 peak of 22%.
PTR’s cost of equity forecast is 12.9% — slightly above recent levels. Forecasted cost of equity suffered a dramatic, erratic increase between 2015 and 2023. The current forecast is well above the 2019 low of 5.6%.
At MACOM Technology Solutions Holdi! current price of $98.98, investors are placing a positive value of $57 on its future investments. This view is consistent with the company’s most recent performance that reflected a growth rate of 8.0% per year, and a return on equity of 18.8% versus a cost of equity of 10.8%.
PTR’s 2025 Price Target of $41 is based on these forecasts and reflects an estimated value of existing assets of $54 and a value of future investments of $-14.
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