Catalyst Semiconductor swings to profit; inks distribution pact
Shares of Catalyst Semiconductor, Inc. (Nasdaq: CATS) are trading higher after the supplier of analog, mixed-signal and non-volatile memory semiconductors reported late Thursday that it swung to a profit in its fiscal first quarter. Catalyst also reported that it has signed a global distribution agreement with electronic components distributor Digi-Key Corp.
For the three months ended July 29, the Santa Clara, Calif.-based company swung to a profit of $0.04 per share, compared with a loss of $0.02 per share a year earlier. Results came in above analyst’s expectations for a profit of $0.01.
The company also signed a global distribution agreement under which Digi-Key will offer Catalyst's analog, mixed signal and non-volatile memory products. Some of Catalyst's products Digi-Key will offer include Quad-Mode LED drivers, which provide 10% higher efficiency and up to 65% smaller packaging compared with competitive LED drivers.
“We think it’s a nice opportunity because they’re getting into analog mixed signals and Digi-Key will be a key distributor for them as well as a ‘go to’ for design engineering,” said C.E. Unterberg Towbin analyst John Vinh. “It’s a timely agreement as Catalyst’s revenues are starting to ramp rapidly.”
Catalyst recorded strong revenues for its fiscal 2008 first quarter of $19.9 million, compared with $15.2 million in the same period last year. Revenues exceeded Vinh’s estimate of $18.8 million, and were above the Street’s $18.9 million.
Vinh said the company’s gross margins, which grew to 36.2% in the recent quarter from 32% for the same quarter last year, clocked in above his expectation of 34%. Vinh said the up tick in margins can be attributed to lower product costs, a reduction in inventory write-offs associated with product transitions and a shift in product mix towards higher gross margin analog products.
According to Vinh, strong LED driver shipments drove most of the growth in analog/mixed signal revenues, accounting for about half of the mix within this segment. The analyst said he expects analog revenues to post double digits moving forward.
“At this point, we believe the company’s investment into analog products combined with the migration to 0.35 microns has finally paid off and has set the stage for meaningful future revenue and earnings growth alongside gross margin expansion,” Vinh wrote in a research note today.
Vinh, who upgraded Catalyst to a “buy” rating today, raised his fiscal 2008 second quarter earnings estimates to $0.07 from $0.05 per share, and raised his overall fiscal 2008 estimate to $0.27 per share from $0.18 per share. The Street puts EPS at $0.03 for the second quarter and $0.13 for the year. For the second quarter last year, Catalyst had EPS of $0.01 and incurred a loss of $0.03 per share for the full year in fiscal 2007.
Vinh forecasts a $9 target price and says that Catalyst’s shares are significantly undervalued trading at 0.5 times his forward 12 month enterprise value/sales estimate, compared with the company’s peer group, which currently trades in the range of 1.3 times to 2 times forward 12 month enterprise value/sales estimate.
Shares of Catalyst were up 7.94%, or $0.39, to $5.30 in mid-day trading Friday.
