Xilinx Slides as Wall Street Doesn’t See a Short-Term Upside

(Bloomberg) -- Xilinx Inc. tumbled the most in almost five years Thursday after it gave a disappointing gross margin outlook late Wednesday, and several analysts said they’re unable to see any opportunity for short-term upside.

Shares slid almost 16 percent on soaring volume, slashing the year-to-date advance to 40 percent.

Xilinx Slides as Wall Street Doesn’t See a Short-Term Upside

Deutsche Bank analyst Ross Seymore kept his hold rating and lowered his price target to $120 from $125, saying Xilinx sells at a premium valuation.

“The quarter and guide highlight the cyclical strength as well as market share gains that XLNX is delivering in Wireless Comms,” he said in a note, “but fear that growth rates in this segment may be peaking and thereby require a smooth and thereby potentially challenging transition to growth coming from the smaller Data Center segment.”

Here’s what others on Wall Street are saying:

Goldman Sachs, Toshiya Hari

Downgrade to neutral from buy due to a "lack of potential upside" to Goldman’s $122 price target in the next 12 months. Exposure to 5G, as well as opportunity for growth in data centers and autonomous vehicles, are all positives, but current valuation is now full.

Credit Suisse, John Pitzer

First-quarter results were “clearly not good enough and the stock needs to consolidate.” Still, the long-term road map is fully intact price target rose to $135 from $110 on the promises of 5G and data centers.

Rates outperform

Needham, N. Quinn Bolton

Xilinx is at risk of multiple compression after “tremendous” growth in its wireless communications business in the past year. Its 5G wireless revenue, which Bolton believes has been padded by baseband applications, could face headwinds as baseband competes against ASIC solutions. And risk of 5G deployment delays in China and other markets outside South Korea “could lead to an inventory correction.”

Rates hold from buy

Cowen, Matthew Ramsay

Lowered price target to $120 from $130 after Xilinx’s earnings results “failed to meet lofty expectations following a strong of significant beat/raises.” Gross margin weakness “and recasting of revenue raise questions the analyst day will need to answer.”

Market perform

JPMorgan, Harlan Sur

Gross margins came in at 67.5 percent, missing the consensus and prior guidance of 68.5 percent because of an increase in wireless infrastructure-related revenue. A shift in the 5G revenue mix is expected in the coming 9-12 months as ASIC solutions overtakes FPGA services. Xilinx’s recent financial performance is already reflected in premium multiple.

Rates underweight; PT $108

Jefferies, Mark Lipacis

Xilinx “benefits from secular growth in data center, cyclical growth in comms and share gains.” There is opportunity for upside if growth strengthens from industrial and automotive sectors and adoption speeds up for products in Cloud applications and 5G base stations.

Rates buy; PT $156

What Bloomberg Intelligence Says

High expectations of Xilinx imply that management will need to prove a trajectory of sustainable growth, especially after a lower margin could temper 2019’s growth. “Favorable trends in 5G networks and cloud data centers that fueled Xilinx’s robust 2019 sales growth should extend into 2020.”
-- Woo Jin Ho, BI technology analyst
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