Maxim Integrated Products (MXIM or MXIM.PK) has been one of our disappointing holdings. We bought an initial position in February 2005 at $39.44 per share and added to that position in June 2006 at $31.33 per share thinking the worst was over for the stock. The stock is currently priced at $18.35, down from its $55 high in 2004.
Maxim got caught up in an options backdating scandal. Nasdaq delisted it. And it has taken the company a long time to restate its financials, which has resulted in significant legal and accounting fees.
Barron’s reports today:
Now there are signs that the worst may be over. The company, with a market value of $6 billion, has submitted revised financial statements to its auditors. Earnings are expected to pick up next year, as the legal expenses of the probe recede into the past. And conditions in the chip industry could start to improve markedly within a couple of years.
Result: The stock could rocket by more than 40%. The hope is that growth investors, who abandoned the shares over the past couple of years, will start returning in force. What they’ll find is a stock that trades at a sharp discount to its peers and boasts $1.2 billion of cash and no debt.
Value Line stopped covering Maxim when it was delisted. However, Morningstar still follows the company and rates it 5-stars (undervalued) and gives it a fair value estimate of $34. Here are some excerpts from the Morningstar Report from May:
We consider Maxim Integrated Products one of the better long-term semiconductor investments. With attractive products, sought-after talent, and a plausible plan for growth, Maxim should continue generating healthy returns on invested capital for many years. …Â Maxim is well positioned in its core business of high-performance analog (HPA) chips, which are complex and proprietary by nature. Armed with one of the most talented design teams in the industry, Maxim has been able to produce superior designs that command a price premium. … We now expect Maxim to grow sales at a compound annual rate of 8.2% for the next seven years, down from the 13% assumption used in our previous model. Although we expect the consumer business to be highly competitive, we think Maxim’s gross margins will likely remain in the low 60s. … We forecast operating margins in the low 30s.
Until the SEC approves its revised financial statements, Maxim is limited on the information it may release publicly. This makes analysis of the company difficult.
Maxim will release financial results for the fourth quarter of its 2008 fiscal year on Thursday, August 7, 2008. A video replay of the earnigns conference can be found on the investors section of the Maxim website.