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A Few Reasons to Buy This Chip Stock for the Long Run

August 12, 2014 | About:
jaggom

jaggom

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Maxim Integrated (MXIM) is gaining traction in several end markets. Looking ahead, as customers are increasingly shifting towards application integration with the integration of infotainment and automotive applications to mobile payment systems and industrial, maxim should continue getting better. Further, mobility is also gaining pace with increased content in new smartphone platforms, tablets, e-readers and a growing category of wearables.

Automotive demand is strong

The automotive business of Maxim increased 25% in the March quarter as compared to the year ago period. The June quarter industrial revenue is projected to increase sequentially primarily driven by growth in automotive and seasonality in its core industrial business.

The automotive business of Maxim grew for the fifth consecutive quarter mainly driven by the growth in the infotainment category and with the mobility user experience moving towards the automotive market. There’s also an increasing demand for the processors and sensors for cars, which again gives expanded opportunities to Maxim.

There was robust demand for infotainment and body electronics applications during the quarter. Moreover, additional growth is anticipated in areas such as advanced driver assistance safety systems and in hybrid and electric vehicle battery management with time.

More markets

The highly integrated medical products of Maxim addressed the growing need for affordable low power and biomedical monitoring devices in doctor's offices and in preventive care at home. The company achieved several design wins in the quarter that includes a high integration portable ultra sound transceiver and a medical heart rate monitoring device. The reason behind this success is its ability to integrate low power, secure microcontrollers, with highly accurate analog measurement, and expertise in developing compact, highly efficient power management solutions.

Maxim is promoting a new highly integrated system-on-a-chip product, which has received huge traction from multiple customers, making very small form factor point-of-sale terminals. The chipmaker is believed to be very well positioned for the heightened security requirements for financial terminals, which utilize chip and PIN smart card architectures.

Maxim has experienced strong end-market bookings for its distribution business and the same strong traction for resale in North America and Europe for the last two quarters.

Fundamentals

The trailing P/E and forward P/E ratios of 25.87 and 16.65, respectively, indicate the robustness of the company's operations. Moreover, it’s better than the industry’s average of 65.63. The PEG ratio of 2.09, above 1, depicts slow growth. The industry’s average is acceptable at 1.63. However, it’s better than competitor STMicroelectronics NV, which has a PEG ratio of 8.20. The profit margin is robust at 16.08%.

The revenue per share and diluted EPS of $8.48 and $1.33, respectively, represent satisfactory financial return for investors. The industry’s average regarding the diluted EPS is $0.14 only. The current ratio is stable at 5.06. Therefore, although there are some weaknesses in Maxim's business, investors are advised to invest in the stock looking at the robust long-term growth prospects as indicated by an earnings CAGR of 9.79%.


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