Alter Your Portfolio with Altera
Altera (ALTR) recently reported revenues of $336 million in Q1:FY2008, exceeding our estimate of $326 million, mainly due to growth in sales of new products. Japan was the strongest market as sales grew 15% quarter-over-quarter and 19% year-over-year. EPS of $0.27 beat our estimate of $0.21 and street consensus of $0.23. Gross margin dipped to 65.1% from 65.7% generated in the year-ago quarter but improved from 64.1% in the previous quarter.
ALTR generated 41% of revenue from Communications, where sales increased 4% quarter over quarter. While results/guidance are not above seasonality, they were above guidance following a somewhat weak December quarter. Going forward, revenue is expected to grow 1%-4% on a sequential basis in the second quarter of 2008, while gross margin is anticipated to come around 65%.
We have adjusted our FY2008 estimates and maintain our Buy rating and target price of $23. The primary theme to watch at Altera over the next 12 months is new product introductions and technology migrations. During the 65nm transition cycle for the semiconductor industry, Altera trailed Xilinx (XLNX) significantly in terms of timing. Altera is only beginning to ramp 65nm products at the moment, with the Cyclone III product line now completely rolled out and contributing $1.5M to FQ$ revenues and Stratix III beginning to ramp design wins at a good pace. Without a doubt, these product introductions will contribute nicely to sales growth in fiscal 2008.
However, the highlight of the year will be the fact that in close partnership with foundry services supplier TSMC, Altera also will begin rolling out this year its first 45nm products. This is not only ahead of Xilinx, but uniquely is also on par with at least one of the two major PC CPU vendors in the IC industry.
Texas Capital Beats, Stays a Hold
Texas Capital Bancshares' (TCBI) 1Q08 operating results were $0.30 per share versus $0.29 per share recorded in the prior-year period. Results came in ahead of our expectation, driven by a substantially lower-than-expected provision for loan losses recorded for the quarter.
Growth remains paramount, as 1Q08 average portfolio loans expanded 25.9% year-over-year. Credit quality appears to be contained presently. Prior to the conference call, we have lowered our 2008 EPS expectation to $1.30 per share, but maintained our 2009 EPS expectation at $1.60 per share. We continue to view the shares of TCBI as a Hold.
Current relative pricing continues to look attractive on a P/E-to-growth (PEG) basis, using the consensus forward estimate and the consensus long-term growth rate. TCBI's PEG ratio on this basis is 1.00, 36.4% discount to the 1.71 median for the peer group (versus a 33.9% discount previously).
Our six-month target of $17.50 per share equates to 1.45x our projected book value six months out. This target price also equates to 13.5x our 2008 projected earnings per share.
