Needham has maintained a Buy rating on Lattice (OTC:) Semiconductor (NASDAQ: LSCC) but lowered the price target to $61 from the previous $80 in the wake of Lattice failing to meet expectations from second-quarter results.
To be sure Lattice’s earnings per share of $0.23, falling short of the expected $0.24 consensus.
Needham attributed the shortfall primarily to ongoing inventory adjustments, particularly in the Industrial and Automotive segments.
The analyst from Needham noted that the current weakness in Lattice Semiconductor’s performance is not due to losing market share but is a result of the company entering the downturn later than its competitors. It was also suggested that the inventory overhang might be more significant than initially anticipated. Despite these challenges, there were positive signs, such as improvements in bookings and backlog on a quarter-over-quarter basis.
Expectations for the second half of 2024 have been tempered, with revenue projections now set to be lower than those of the first half of the year. This revision has led to a decrease in the earnings estimates for the company. The analyst expressed a belief that this adjustment might lead to investors assigning a lower valuation multiple to Lattice Semiconductor shares.
Needham’s report concluded with a revised valuation multiple of 35 times the calendar year 2026 next-generation earnings per share (NG EPS).
The company’s sales also decreased by 35% year over year and 12% sequentially. The downturn was especially notable in the industrial and automotive sectors, which saw a 50% decrease, and the communications and computing segments, which experienced a 15% drop.
InvestingPro Insights
Recent InvestingPro data and analysis provide additional context to the situation at Lattice Semiconductor (NASDAQ:LSCC). The company is currently trading at a high earnings multiple, with a P/E ratio of 40.64, and even after adjustments for the last twelve months as of Q1 2024, it stands at a still elevated 34.2. This is in line with the concerns raised by Needham about the potential for investors to assign a lower valuation multiple to Lattice shares. Additionally, the company’s revenue has shown a slight decline of 0.07% over the last twelve months as of Q1 2024, with a more pronounced quarterly revenue drop of 23.6% in Q1 2024, which may underscore the challenges ahead.
On a more positive note, InvestingPro Tips indicate that Lattice Semiconductor’s cash flows can sufficiently cover interest payments and that its liquid assets exceed short-term obligations, suggesting a degree of financial stability. However, analysts have revised their earnings downwards for the upcoming period and anticipate a sales decline in the current year, aligning with the caution expressed by Needham.
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