Earnings Previews of Two Acquirers

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Semtech's (NASDAQ: SMTC) buyout of Canadian firm Gennum last March had an immediate impact on its earnings. Despite the positive effect, the semiconductor maker’s profits probably slumped in its fiscal 2013 (ended in January). Still, Semtech is a resilient company, and the next 12 months look to be better in terms of bottom-line comparisons.

Elsewhere, apparel producer PVH (NYSE: PVH) recently closed the purchase of fellow manufacturer the Warnaco Group. The shares were boosted by news of the deal back in October, but haven’t moved much since then. Share net is apt to trend favorably, barring setbacks.  

Here are the company descriptions and forecasts:

Semtech

The analog and mixed-signal semiconductor maker spends 20% to 25% of revenues on research and development, resulting in a high proportion of proprietary offerings and wide gross margins. The communications and high-end consumer markets are its two largest customer contingencies, with Industrial/Other and Enterprise Computing rounding out the segments. Its goal is 60% gross (product) margins, one that it achieved in the October 2012 quarter.

Semtech lists as its biggest client Samsung, who it supplies with handheld-related components. Huawei, its second-largest customer, is also in the communications industry. Accordingly, further market share gains by either of these companies would have positive ramifications.

January-quarter earnings were likely about $0.34 a share, up from $0.23 in the previous year. The addition of Gennum expands Semtech’s presence in high-growth markets, particularly broadcast video. It also makes products for the transition of analog cctv to full digital HD and is investing in consumer, backplane (for bandwidth increases) and video platform product development.

In all, R&D and acquisitions have left Semtech positioned for growth over an extended term. The shares have consequently reached a ten-year high, but may well be poised to climb further, particularly over three to five years.

PVH

Formerly Phillips-Van Heusen, PVH is a recent addition to the S&P 500. The February purchase of Warnaco brought together all Calvin Klein assets under one roof. PVH, currently experiencing revenue increases at its Tommy Hilfiger brand, seems to be aiming to alleviate slowdowns at other divisions. It is touting the acquisition as creating a global powerhouse, bringing Warnaco’s Asia and Latin America business together with its own North America and Europe-based units.

Share earnings could well have advanced about 27% in the January interim. And, PVH is likely to post solidly higher results in 2013, with revenue and earnings buoyed by merger synergies. Profitability should be relatively stable, as opposed to some fashion entities, in light of PVH’s large and diverse set of brands, also including IZOD, ARROW, Bass, and Speedo etc. It is similar to V.F. Corp. (NYSE: VFC), another apparel conglomerate; the difference is that V.F.'s brands, like Nautica, Timberland, and North Face are mostly outdoor focused. VFC shares have long-term appeal at the current quote.

PVH shares would jump on better-than-anticipated earnings. The second half of the year and beyond will be more telling as far as how benefits of the acquisition are achieved. Concurrently with the buyout, PVH issued long-term debt that may leverage the balance sheet to a greater degree. Still, the newly-formed apparel giant may well provide value to shareholders over several years, as it will have the means for further expansion or asset-mix changes.

Summary

Semtech will report earnings on March 6 and PVH on March 26. Investors may want to consider them for their long-term upside. The first is banking on the video and surveillance market to support profit gains. The latter’s enhanced scale and scope ought to serve it well over the long haul.


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