Semtech Corporation (SMTC) is a fabless supplier of analog and mixed signal semiconductor devices. Management has been diversifying the product portfolio, introducing new high-margin products and broadening the customer base. July quarter revenue was in-line with consensus estimates, while the EPS exceeded.

Forward guidance is for a 0-4% revenue increase in the October quarter. With backlog increasing again in Q2, we do not expect results to fall short of guidance. Both revenue growth and margin expansion are expected as new product platforms gain traction.

We are reiterating our BUY rating on Semtech Corp. shares. Although the macro situation in the U.S. was expected to impact consumer spending, the consumer segment grew very strongly in the last quarter, and management expects continued growth in Q3. We expect the shares to trade higher within the next six months. Consequently, we are reiterating our $20 price target (21.1x P/E) and recommending investors accumulate shares.

Sejuti Banerjea contributed to this report.