Benchmark just put out there takeaways from their management meeting with Entropic (ENTR) earlier this week.
Here’s what they had to say:
We recently hosted meetings with Entropic’s management. Following the meetings, we reiterate our “Buy” rating and $14.00 price target. While Broadcom’s should gain some (<25%) market share during CY11, the market for MoCA chipsets continues to surprise to the upside and should help contribute to Entropic’s revenue growth through the foreseeable future. Most important, Entropic is a pure-play on the trend toward streaming networked video within a home as well as the future shift toward IP-based video delivery on the part of cable MSOs. As a result, we believe Entropic remains a likely acquisition target for companies such as Qualcomm/Atheros, ST Micro, Intel and Marvell.
On Wednesday, DirecTV, Entropic’s largest carrier channel/customer, reported very strong Q4 FY10 results which bodes well for Entropic’s CSS sales as well as the overall MoCA chipset market. However, DirecTV did mention during the Q4 FY10 earnings call that the H25 set-top box will soon ship. Also, the Motorola 3501 settop box will commence shipment primarily to Comcast customers. Because the H25 and 3501 boxes use Broadcom’s integrated MoCA solution, what little market share Broadcom will gain from Entropic during 2011 should occur in a step-like function during Q2 FY11 (June). As a result, we are trimming our Q2 FY11 revenue estimate for Entropic by 3%. We don’t expect Broadcom to gain additional share during 2H FY11, and we expect Entropic’s 2H FY11 revenue to rise meaningfully over 1H FY11 primarily due to normal seasonality.
Our $14 price target assumes shares trade at 17.0x our forward-12-month non- GAAP EPS estimate of $0.83. This P/E multiple is slightly below communication IC peers; however, Entropic should experience much more robust EPS growth relative to peers. We are assuming a lower-than-average PE/growth ratio for Entropic because it is possible Entropic’s valuation will be held back because of looming competition from Broadcom (BRCM).
With this note two houses, Benchmark (today) and Pacific Crest (yesterday) have reiterated their bullish stance on ENTR, Pacific Crest saying buy this pullback. Well here at HFL we have been trying to buy the pullback and we have been getting our heads bashed in as their have been zero buyers.
We saw some strength into the close yesterday after Pacific Crest announced their bullish take following the DTV call. I have added to my position in ENTR today and although the name has been weak this morning it has been holding $9 and I think it is only a matter of time for traders/investors to start trusting the Analysts.
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