MACOM Stock: Overlooked 5G Play up 140% Since March Still Has Great Mometnum

MACOM Stock Remains Bullish on Strong Q3 Results

MACOM Technology Solutions Holdings (NASDAQ:MTSI) is a small-cap 5G play that has experienced huge growth since the middle of 2019. Since May 2019, MACOM Technology stock has climbed 176%. MACOM stock is also up approximately 70% year-over-year, 35% year-to-date, and 140% since hitting March lows.

MTSI stock has had great momentum over the last 17 months. In fact, that growth trajectory was only interrupted by the COVID-19 crash in March and September sell-off. Just before both events, MACON stock was trading at 52-week highs. While still down from its August highs, MTSI stock has recovered all of the losses associated with the September meltdown.

Looking ahead, with 5G finally starting to ramp up and getting closer to fulfilling the promises of unprecedented internet communication, MACOM Technology Solutions Holdings is poised for even greater growth over the coming years.

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MACOM Technology Solutions Holdings Overview

5G runs better on MACOM’s strategic infrastructure technology. The Lowell, MA-based company designs and manufactures semiconductor products for data center, telecommunication, industrial, and defense applications throughout North America, Europe, and Asia. (Source: “About Us,” MACOM Technology Solutions Holdings, last accessed October 15, 2020.)

More specifically, the company manufactures radio frequency (RF), microwave, millimeterwave, and lightwave spectrum products. These electronic components get added to various electronic systems, including 5G RF antenna on wireless base stations (which enhances wireless performance), high-speed optical networks, active antenna arrays, radar, medical systems, and test and measurement.

Q3 Revenue up 26% on Adjusted Earnings of $22.7 Million

On July 29, MACOM Technology Solutions Holdings announced that revenue for the third quarter ended July 3 increased 26.7% year-over-year and 8.6% sequentially to $137.3 million. Gross margin was 51.6%, compared to 31.2% in the same prior-year period and 50.1% in the prior quarter. (Source: “MACOM Reports Fiscal Third Quarter 2020 Financial Results,” MACOM Technology Solutions Holdings, July 29, 2020.)

Second-quarter 2020 operating income was $6.5 million, compared to a loss of $323.8 million in the same period last year and a loss of $5.3 million in the second quarter of fiscal 2020.

MTSI reported a third-quarter net loss of $25.0 million, or a loss of $0.37 per diluted share. A significant improvement over the third quarter of fiscal 2019, when the company reported a net loss of $324.7 million, or $4.95 loss per diluted share. In the second quarter of fiscal 2020, MTSI reported a net loss of $10.2 million, or $0.28 loss per diluted share.

Adjusted net income was $22.7 million, or $0.33 per diluted share, compared to an adjusted net loss in the third quarter of fiscal 2019 of $27.7 million, or a $0.42 loss per diluted share. In the second quarter of fiscal 2020, MTSI reported adjusted net income of $11.9 million, or $0.17 per diluted share.

Business Outlook

For the fiscal fourth quarter ending October 2, 2020, MACOM Technology Solutions Holdings expects to report:

• Revenue in a range of $144.0 million to $148.0 million, for year-over-year growth of between 28.5% and 32.1%
• Adjusted gross margin between 55% and 57%, compared to 53% in the fourth quarter of fiscal 2019
• Adjusted earnings per share between $0.36 and $0.40, versus adjusted earnings per share of $0.01 in the fourth quarter of fiscal 2019

Analyst Take

MACOM is an excellent, overlooked infrastructure play for 5G investors. The company has great momentum, and it recently reported strong third-quarter results and an impressive outlook for the fourth quarter. With the rollout of 5G, demand for MACOM’s semiconductor products should soar over the coming years, along with its share price.