Smart Global Drops 12% On 4Q Sales Miss

Shares of Smart Global Holdings plunged 12.1% on Friday after the company reported lower-than-expected 4Q top-line results. On Oct. 1, the manufacturer and supplier of electronic subsystems reported revenues of $297 million, which fell short of analysts’ expectations of $299.4 million.

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Smart Global’s (SGH) 4Q revenues improved 6.7% from the year-ago quarter. Meanwhile, adjusted EPS grew 65.2% to $0.82 and beat the Street consensus of $0.78. The company’s CEO, Mark Adams said, “Our fourth fiscal quarter results demonstrate the strength of our business during these challenging times. Fourth quarter revenue grew by 5.6 percent sequentially, driven by strength in both our Specialty Compute and Storage Solutions and Brazil businesses.”

Smart Global expects revenues of between $280 million and $300 million for 1Q, which, which at the mid-point, are higher than analysts’ expectations of $285.4 million. Its adjusted EPS forecast of $0.70 (+/- $0.05) exceeds the Street consensus of $0.68. (See SGH stock analysis on TipRanks)

Following the company’s results, Needham analyst Rajvindra Gill raised the stock’s price target to $39 (56.7% upside potential) from $35 and reiterated a Buy rating. In a note to investors on Oct. 2, Gill wrote, “We believe SGH stands to benefit from the recovery in the memory cycle and the shift towards high-density, high-margin applications. We view the Brazil business as a reliable source of revenue and view the Specialty Memory and Specialty Compute & Storage Solutions businesses as long-term growth drivers.”

Currently, the Street has a bullish outlook on the stock. The Strong Buy analyst consensus is based on 4 Buys and 1 Hold. With shares down over 34% year-to-date, the average price target of $35.40 implies upside potential of about 42.2% to current levels.