Wait & Watch Atheros Shares
Atheros Communications, Inc. (ATHR) reported revenues of $114.3 million in Q4:FY2007, up 30.2% from the year-ago period and up 7.5% sequentially, ahead of our estimates of $113 million. The sequential increase in revenues was mainly due to a further expansion of LAN business with particular strength in 11g solutions.
The results for the quarter also include results from u-Nav acquisition, which was closed on December 14, 2007. Non-GAAP EPS was $0.36, easily beating our and consensus estimate of $0.30, mainly due to higher revenues and gross margin upside.
Strength was seen in 802.11g products, generating 67% of WLAN revenue, through telecom carriers deploying WLAN in their broadband gateways and also with PC/OEM customers. For Q1 2008, management has projected revenues to be relatively flat sequentially. Gross margin is anticipated around 50% -51% while EPS is expected to be around $0.27-$0.28.
While 802.11n products did not see gains into Q4, it is interesting to see continued strength with 802.11g, suggesting that market adoption to 11n may not yet be disruptive enough to cannibalize the 11g product portfolio. Also encouraging was the reported favorable pricing in 11g, which contrasts to our expectation of continued ASP erosion. We still believe, though, that the wider adoption of 11n in the market will benefit Atheros as these products command higher prices.
We expect 11n to pick up throughout 2008 as new design wins in laptops and access points for both retail and carrier markets begin shipping. Given the muted near-term growth expectation we are maintaining our Hold rating with a target price of $30, implying a P/E multiple of 23.8x our 2008 EPS estimate. This target multiple is above the median P/E multiple for the industry.
Ferrellgas Estimates Reduced
Ferrellgas Partners, L.P. (FGP) reported weaker-than-expected fiscal second-quarter 2008 results, primarily reflecting the impact of higher expenses and lower volumes of propane sold. As expected, the partnership kept its quarterly cash distribution unchanged at $0.50 per unit ($2 per unit annualized). Our Hold recommendation and price objective remain unchanged, as we continue to believe that current valuation adequately reflects the partnership's lack of distribution-growth prospects, margin pressures, and a relatively weak balance sheet.
Ferrellgas is facing margin pressure due to the high wholesale prices of propane as well as increasing operating and G&A expenses, which the partnership is unable to pass on to its retail customers. The wholesale market price of propane has steadily increased in the recent past, which the partnership has not been able to fully pass on to end consumers.
We have reduced our earnings estimates to reflect the quarterly miss and lower margin assumptions.
