Power-One Inc.: Healthy Results Support our Trough View
Overall, we believe Power-One’s second consecutive better-than-expected quarter and healthy near-term guidance supports our view that 1H12 is likely to serve as a trough for the company.
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Stock Rating/Sector View: 1-Overweight/2-Neutral
Price Target: USD 6.00
Price (03-May-2012): USD 4.43
Potential Upside/Downside: +35%
Overall, we believe Power-One's second consecutive better-than-expected quarter and healthy near-term guidance supports our view that 1H12 is likely to serve as a trough for the company. While demand was certainly - and expected to be - influenced by pull-through demand in Europe, continued growth in key markets such as North America suggests steady progress towards ongoing geographic diversification. We modify our estimates and retain our relative 1-Overweight rating.
Pull-Forward Demand Drives 1Q Upside: PWER reported revenues of $226mn, above our $200mn and consensus' $204mn estimate. Revenues above management's guidance of $190-$210mn were expectedly driven from pull-forward demand in Europe ahead of expected tariff cuts, although North American penetration continues to gain traction.
Sequential GM Dip Expected, Although Higher Tax Saps EPS Upside: Gross margins of 24.4% fell just shy of our 25.0% estimate on a mix of ASP declines, lower-than-expected factory volumes and higher costs associated with PWER's service footprint build-out. Though opex was broadly in-line with expectations, a higher-than-expected tax - from higher EU demand - clipped bottom-line upside from sales outperformance yielding PF EPS of $0.07, in line with our estimate of $0.07 and just below the street's $0.08.
Near-Term Guidance Paints an Improving Picture; 2H Bears Monitoring: 2Q revenue guidance of $240-$260mn (+6-15% q/q) was well ahead of expectations as near-term European strength is expected to continue. Coupled with expectations of improving gross margins lends support to our view that 1Q12 is likely to serve as a trough for the company. Demand in 2H from legacy (ie, Germany and Italy) and new (ie, U.S. and India) bears monitoring, however, as the company looks to crisply execute on a number of fronts (new product introduction, geographic expansion). We modify our 2012 and 2013 estimates and maintain our relative 1-Overweight rating.
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