Understanding MACOM Technology Solutions’ Risk Factors

Massachusetts-based MACOM Technology Solutions (MTSI) is a supplier of semiconductor products. It recently sold its stake in Ampere Computing, which develops ARM-based processors, for $127.7 million.

For Fiscal Q4 2021 ended October 1, MACOM Technology reported a 5.4% year-over-year increase in revenue to $155.2 million and met the consensus estimate. It posted adjusted EPS of $0.61, which rose from $0.40 in the same quarter in the previous year and beat the consensus estimate of $0.58.

The company has scheduled its upcoming earnings report for January 27 and expects revenue to be in the range of $157 million to $161 million. It anticipates adjusted EPS in the band of $0.60 to $0.64. The consensus estimate calls for EPS of $0.58 on revenue of $158 million.

With this in mind, we used TipRanks to take a look at the newly added risk factors for MACOM Technology Solutions.

Risk Factors

According to the new TipRanks Risk Factors tool, MACOM Technology Solutions’ main risk category is Finance and Corporate, representing 28% of the total 50 risks identified for the stock. Production and Legal and Regulatory are the next two major risk categories at 22% and 18%, respectively. The company recently updated its profile with four new risk factors.

MACOM Technology Solutions informs investors that it carries some debt, including 2026 convertible notes. It explains that its ability to service the debt will depend on its business being able to generate sufficient cash flow to also meet capital expenditures. But all that is subject to economic and competitive factors beyond its control. As a result, the company cautions that it may be unable to generate sufficient cash flow, which could force it to adopt other remedies, such as selling assets or turning to the equity market to finance its debt. Still, those remedies may not work as expected, and the company could default on its debt obligations.

In connection with the 2026 convertible notes, MACOM Technology Solutions is subject to certain terms that could deny it certain opportunities. For example, there are circumstances when the company may be required to repurchase the notes before maturity or increase the conversion rate. The company cautions that those terms could block its acquisitions, even if such transactions would be beneficial to its investors.

MACOM Technology Solutions tells investors that there is an increasing focus on companies’ environmental, social, and governance (ESG) responsibilities. For example, the company mentions that some of its customers are including ESG requirements in their procurement terms. Investors are also increasingly demanding that companies disclose their ESG practices. At the same time, ESG regulations continue to change and may be expensive or difficult to comply with. MACOM Technology cautions that if it is unable to comply with ESG provisions, it may lose customers and investors, face legal actions, and suffer reputational damage.

The Finance and Corporate risk factor’s sector average is 48%, compared to MACOM Technology Solutions’ 28%. MACOM’s stock has gained about 12% over the past 12 months.

Analysts’ Take

In December, Stifel analyst Tore Svanberg reiterated a Buy rating on MACOM Technology Solutions stock and raised the price target to $90 from $88. The analyst’s new price target suggests 44% upside potential.

Svanberg’s action followed MACOM’s sale of its Ampere stake. The analyst noted that the transaction enabled the company to enter 2022 in its strongest financial position for more than eight years. Additionally, the analyst sees strong long-term growth prospects for the company because of the resilient end market.

Consensus among analysts is a Moderate Buy based on 8 Buys and 3 Holds. The average MACOM Technology Solutions price target of $86.09 implies 37.74% upside potential to current levels.

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