Altera Has The Legs To Keep Running

6/6/2011


  Recent Price
$48
  Dividend
$0.24
  Yield
0.5%
  P/E Ratio
18
  Shares (millions)
328
  Long-Term Debt as % of Capital
16%
  52-Week Price Range
$49.59 - $22.45

Altera ($48; ALTR) has rallied 57% since we first recommended it in September, more than triple the gain of the S&P 1500 Index. Altera also stands out among its peers, generating a 105% total return in the past year, fourth among semiconductor stocks in the index and nearly triple the group's average of 38%.

Operating in the highly cyclical semiconductor industry, Altera rebounded sharply from the recession. The company has reeled off seven straight quarters of free-cash-flow growth, and sales have climbed at double-digit rates in the last six quarters.

Altera earns scores of 85 or higher in five of the six Quadrix categories. The exception is Value, where Altera earns a 47. Versus its own history, the stock seems reasonably valued at 18 times trailing earnings, 12% below its five-year average P/E ratio. But Altera commands a premium to peers on virtually all of the valuation metrics we consider. Such a premium appears justified, and the stock remains a Focus List Buy and a Long-Term Buy.

PLDs: where the growth is

Altera produces programmable logic devices (PLDs), standardized semiconductors shipped blank for the user to program. Unlike other semiconductors locked in to a specific function, PLDs can be customized for a wide range of applications.

The PLD market expanded 45% to $4.8 billion last year, outpacing the 31% increase for the broader $299 billion semiconductor market. Altera grew its share of PLD market to 40% from 36%.

Altera's semiconductors power everything from broadcasting equipment to radar systems to wireless routers, limiting exposure to the weak personal-computer market. Primary industries include telecommunications and wireless (44% of 2010 revenue); industrial automation, military, and automotive (21%); and networking, computer, and storage (14%). Altera posted double-digit sales growth at all three segments during the March quarter, paced by a 42% gain at the telecom unit.

Prospects for telecom and wireless look especially strong as India and China deploy third-generation networks and countries including the U.S., Japan, and South Korea unfurl fourth-generation technology. Each successive generation demands more complex semiconductors, with PLDs accounting for a larger piece of the pie. The end result is that Altera says it can continue to grow even if overall capital spending on wireless projects remains flat.

Conclusion

Many worry that the semiconductor industry has become stretched and could face an inventory correction. But Altera seems capable of churning out more growth. Management expects revenue to advance at twice the rate of the broader semiconductor industry through 2015. Wall Street sees Altera earning $2.58 per share in 2011, a conservative 4% growth target. Should Altera meet expectations and its P/E return to the five-year average, the shares will be worth $53 early next year.

An annual report for Altera Corp. is available at 101 Innovation Drive, San Jose, CA 95134; 408-544-7000; www.altera.com.

 

ALTERA
Quarter
Per-Share Earnings*
($)
Sales
Change
Quarterly
Price Range
($)
P/E Ratio
Range
Mar '11
0.68
vs.
0.50
+ 33%
45.00
-
35.46
18 - 14
Dec '10
0.72
vs.
0.34
+ 52%
38.14
-
28.50
18 - 14
Sep '10
0.69
vs.
0.19
+ 84%
30.97
-
24.20
19 - 15
Jun '10
0.58
vs.
0.16
+ 68%
27.48
-
21.97
23 - 18
Year
(Dec.)
Sales
 ($Bil.)
Per-Share
Earnings*
($)
Per-Share
Dividend
($)
52-Week
Price Range
($)
P/E Ratio
Range
2010
1.95
2.49
0.22
38.14
-
20.89
15 - 8
2009
1.20
0.84
0.20
23.18
-
13.92
28 - 17
2008
1.37
1.18
0.19
24.19
-
12.99
21 - 11
2007
1.26
0.82
0.12
26.24
-
18.00
32 - 22
 
Quadrix Scores †
Overall
Momen-
tum
Value
Quality
Financial
Strength
Earnings
Estimates
Performance
97
96
47
99
97
88
89

   * Earnings exclude special items.
   † Quadrix® scores are percentile ranks, with 100 the best.


Current Hotline

Stock Spotlight

Individual Stock Reports

ISRs make stock research easy!

Perhaps the most valuable two page reports available anywhere.

All the data you would normally have to plow through years of 10-K filings, earnings reports, and reams of market data to assemble — yours all in one concise report.

ISRs contain our proprietary Quadrix scores — find out how we rate all the stocks in the S&P 500.

Visit us at individualstockreports.com