DSP Group's results, released yesterday, and its raised guidance, have won plaudits from the analysts. (Nasdaq: DSPG. For CIBC World Markets, Shaul Eyal and Ittai Kidron have upgraded their recommendation for the company, which designs chipsets mainly for the short-range wireless market, from "Sector Performer" to Sector Outperformer", and raised their price target from $25 to $28. DSP Group shares closed at $22.50 yesterday, giving the company a market cap of $630 million.
"Strong product pipeline, renewed demand, and a solid technologic path that includes VoIP, WiFi, and Bluetooth products position the company for strong growth in 2H05," Eyal and Kidron write. Referring to the news that CEO Eli Ayalon will resign, to be replaced by senior vice president Inon Beracha, while Ayalon himself will remain as executive chairman, the analysts say, "CEO's change of role to a strategic leadership position and the introduction of a new CEO are positives, in our view."
Eyal and Kidron estimate first quarter 2005 revenue and EPS at $39.1 million and $0.14. For 2005, they see revenue of $181.1 million and EPS of $0.86, and for 2006, revenue of $208.3 million and EPS of $1.04. "We believe the weakness post the company's earning call represents a unique opportunity to build a position in the stock," the analysts conclude.
For WR Hambrecht, Daniel Amir sets a slightly higher price target for DSP Group, of $29, and reiterates his "Buy" rating.
"We are reiterating our BUY rating on DSPG shares following the company's Q4 earnings release because: 1) Q4 inventory is no longer an issue and bookings for Q1 look very strong as the company raised its guidance to $38-40M for Q1; 2) Shipments to the European DECT market had started and we expect DSP to have two major customers in Q1 which should generate an estimated ~$3M in revenue; 3) 2005 growth estimates are in tact. We expect YoY revenue in 2005 to increase by 16% on the heels of penetration into the European DECT market," Amir writes.
"We believe that with its large cash position, DSP is trading at an attractive valuation of 15x forward EPS, which is at the low-end of the historical range. In addition, we are adjusting our EPS estimates for 2005 from $0.75 to $0.86 due to higher GM assumptions."
For SG Cowen, Robert Stone and Christopher Kinkade write, " DSPG is the leading provider of integrated circuits (ICs) used in corded and cordless telephones, and digital answering machines. Its integrated approach to chip design enables OEM customers to offer feature-rich telephony products with reduced chip counts and highly competitive prices. Blue-chip customers include five of the eight major cordless telephone OEMs-Panasonic, Thomson (GE brand), Uniden, Bell companies, and Sony - which have an estimated aggregate 70% share of the US cordless market.
"DSPG has benefited from the rapid adoption of its 2.4GHz chips for cordless phones and multi-handset cordless phones. And, shipments should begin in Q1:05 for DECT (Digital European Cordless Telecommunications) and H2:05 for video applications, which should expand the addressable unit market by more than 50% and increase the semiconductor content opportunity per phone.
"Risks are: execution on product transitions and the timing of new product introductions, which are critical to ASPs; timing of OEM product plans; weakness in consumer spending; and potential for disruptions in core R&D operations due to political risks in Israel.
"A solid balance sheet of $331 million in cash ($11.38 per share) could be used for strategic acquisitions to support further expansion."
Stone and Kinkade's estimates are a little lower than the others', at $180 million revenue and $0.80 EPS for 2005. For 2006, they see EPS of $1.00.
Published by Globes [online], Israel business news - www.globes.co.il - on January 26, 2005