This Stock is Ready to Break Out of Mediocrity, are You Watching?

Harsh is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.

Last month, I told you why you should considering buying TriQuint Semiconductor (NASDAQ: TQNT), under the belief that the company’s business is set to climb higher. However, even though TriQuint’s revenue climbed in the third-quarter reported last month, its shares didn’t.

Getting Better…

TriQuint saw its revenue jump 13% on a sequential basis to $200.8 million in the previous quarter. In addition, the company posted a profit of 2 cents a share, which was better than the break-even point analysts were expecting. However, it can’t be denied that TriQuint’s performance has degenerated from last year, as revenue was 7% down on a year-over-year basis due to a decline in business from smaller customers in the smartphone industry.

But, the gradual improvement in TriQuint’s business suggests that it is going in the correct direction. It expects revenue of $220 million to $225 million in the fourth-quarter, which is comfortably ahead of the consensus estimate which calls for $220.3 million. However, the company’s bottom line projection between 1 cent and 3 cents falls behind the Street estimate of 6 cents, and this is the reason why TriQuint shares were punished last month after earnings.  

…with a Stamp of Approval

But TriQuint’s management is upbeat about the company’s prospects and this is the reason why some of them have been buying shares. There have been a number of insider buys over the last 1 month, as you can see by clicking here. Thus, a vote of confidence from TriQuint’s management is an indicator of the fact that the company is moving in the right direction, and the stock is currently undervalued.

The iPhone 5 Opportunity

TriQuint is expected to make $1.40 on every unit of Apple’s (NASDAQ: AAPL) iPhone 5 according to analysts at Barclays. Apple had sold lower than expected iPhones last quarter, but as the iPhone 5 was released towards the end of September, we can’t judge its performance over such a short time span. Moreover, considering that the iPhone will cover the globe by the end of the year, and there’s news that Apple has finally caught up with supply, I believe good times are ahead for TriQuint.

In addition, Canaccord Genuity analyst Michael Walkley expects that Apple will sell 193.9 million iPhones in 2013. At $1.40 per iPhone, TriQuint would earn near about $272 million, which is more than what it has earned in an entire quarter this year.  

Other Catalysts

Apple is not TriQuint’s only opportunity, as the company is building its relationship with Samsung. TriQuint supplied the power amplifier module for the Galaxy S III and counts the smartphone behemoth as an important customer. Also, the company’s other two businesses, namely networking and defense & aerospace which together account for 37% of TriQuint’s revenue, are also improving.

Networking sales have increased 5% so far this year, driven by solid demand for TriQuint’s optical solutions. Presence of communication equipment giants Huawei and ZTE is positive for TriQuint and it should benefit as these companies build infrastructure for faster networks.

As far as defense & aerospace is concerned, revenue from this business has spiked 9% so far this year on the back of federal government contracts. TriQuint is focused on growing its defense & aerospace business and its contract wins show that it is progressing in the right direction. It recently won a DARPA contract and also received a supplier award from Raytheon (NYSE: RTN).

TriQuint’s relationship with Raytheon could again prove to be a key driver for it, as Raytheon’s presence across various areas such as air & missile defense, border security, air traffic management and Intelligence, Surveillance and Reconnaissance among others, makes it among the best bets in defense. Raytheon’s order backlog increased in its recently-reported third-quarter to $35 billion. Thus, counting Raytheon as a client is a huge positive for TriQuint.

The Takeaway

TriQuint’s Mobile Devices business is the only one that’s not running on all cylinders, but its relationship with Apple, Samsung and other phone makers in the emerging markets should help it tide over this hiccup. Its other two businesses are doing well and I believe TriQuint will have a good time next year. Moreover, a stamp of approval from insiders suggests that the stock is ready for a break out.

TriQuint is currently trading within 15% of its 52-week low, and presents a good opportunity for potential investors to get in. I expect TriQuint shares to rise in the future and I’m backing my claim with an Outperform CAPS call. What about you?

TechJunk13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Raytheon Company, and TriQuint Semiconductor. Motley Fool newsletter services recommend Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

blog comments powered by Disqus