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Rambus (RMBS) Looks Attractive: Is it Part of Your Portfolio?

On Oct 8, Zacks Investment Research upgraded Rambus Inc. (RMBS) to a Zacks Rank #1 (Strong Buy). The upgrade came on the back of positive estimate revisions over the last 60 days.

Over the last 60 days, one out of three estimates for Rambus was revised upward for fiscal 2014. The Zacks Consensus Estimate for fiscal 2014 increased by a penny to 21 cents.

Also, Rambus’s shares are up 21.9% year to date representing a solid return of 29.1% over the past one year. These make the company an attractive investment opportunity. Rambus also delivered positive earnings surprises in the last four quarters with an average beat of 852.5%.

It is also worth noting that Rambus delivered encouraging second-quarter 2014 results. The company’s earnings of 13 cents per share comfortably beat the Zacks Consensus Estimate of 5 cents. Revenues came in at $76.5 million and also marginally beat the Zacks Consensus Estimate of $76.0 million. Licensing agreements with Micron Technology (MU), SK Hynix, Nanya Technology and QUALCOMM (QCOM) positively impacted revenues, which more than offset lower royalty payments received from Samsung.

Licensing agreements are a recurring revenue source for Rambus, the result of successful monetization of its patents. Rambus’ patented technologies are of great importance to chipmakers for manufacturing advanced chips used in computers and electronic goods.

Despite these licensing agreements, Rambus provided a modest third quarter fiscal 2014 revenue guidance. The company expects third-quarter revenues to range between $68.0 million and $73.0 million, marginally down from $73.3 million reported in the year-ago quarter. The Zacks Consensus Estimate is pegged at $71.0 million.

Rambus is going through a restructuring phase and we expect it to yield favorable results in the coming quarters. The company has resolved several of its legal disputes, which lowered litigation expenses and positively impacted operating results.

Moreover, with the rising popularity of energy-efficient lighting, LED products are finding a place in the latest architectural, retail, commercial and residential lighting fixtures. We find Rambus in a favorable position to capitalize on this opportunity.

However, competition from Semiconductor Manufacturing International Corp. and Advanced Micro Devices, Inc. (AMD), and customer concentration remain headwinds for the company. The company’s investments in the CryptoManager platform and certain memory and interface technologies can also impact margins in the near term.

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