Downgrade: Here's How Analysts See Semtech Corporation (NASDAQ:SMTC) Performing In The Near Term

The analysts covering Semtech Corporation (NASDAQ:SMTC) delivered a dose of negativity to shareholders today, by making a substantial revision to their statutory forecasts for next year. Revenue and earnings per share (EPS) forecasts were both revised downwards, with analysts seeing grey clouds on the horizon.

After the downgrade, the consensus from Semtech's ten analysts is for revenues of US$669m in 2024, which would reflect an uncomfortable 14% decline in sales compared to the last year of performance. Statutory earnings per share are anticipated to tumble 42% to US$1.33 in the same period. Prior to this update, the analysts had been forecasting revenues of US$748m and earnings per share (EPS) of US$2.03 in 2024. It looks like analyst sentiment has declined substantially, with a substantial drop in revenue estimates and a pretty serious decline to earnings per share numbers as well.

Our analysis indicates that SMTC is potentially undervalued!

The consensus price target fell 16% to US$42.50, with the weaker earnings outlook clearly leading analyst valuation estimates. Fixating on a single price target can be unwise though, since the consensus target is effectively the average of analyst price targets. As a result, some investors like to look at the range of estimates to see if there are any diverging opinions on the company's valuation. Currently, the most bullish analyst values Semtech at US$63.00 per share, while the most bearish prices it at US$32.00. Note the wide gap in analyst price targets? This implies to us that there is a fairly broad range of possible scenarios for the underlying business.

Of course, another way to look at these forecasts is to place them into context against the industry itself. These estimates imply that sales are expected to slow, with a forecast annualised revenue decline of 12% by the end of 2024. This indicates a significant reduction from annual growth of 6.0% over the last five years. By contrast, our data suggests that other companies (with analyst coverage) in the same industry are forecast to see their revenue grow 7.0% annually for the foreseeable future. It's pretty clear that Semtech's revenues are expected to perform substantially worse than the wider industry.

The Bottom Line

The biggest issue in the new estimates is that analysts have reduced their earnings per share estimates, suggesting business headwinds lay ahead for Semtech. Unfortunately analysts also downgraded their revenue estimates, and industry data suggests that Semtech's revenues are expected to grow slower than the wider market. After such a stark change in sentiment from analysts, we'd understand if readers now felt a bit wary of Semtech.

Even so, the longer term trajectory of the business is much more important for the value creation of shareholders. At Simply Wall St, we have a full range of analyst estimates for Semtech going out to 2025, and you can see them free on our platform here.

Another way to search for interesting companies that could be reaching an inflection point is to track whether management are buying or selling, with our free list of growing companies that insiders are buying.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.