Why Is Semtech (SMTC) Up 2.2% Since Last Earnings Report?

A month has gone by since the last earnings report for Semtech (SMTC). Shares have added about 2.2% in that time frame, outperforming the S&P 500.Will the recent positive trend continue leading up to its next earnings release, or is Semtech due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important catalysts. Semtech's Q3 Earnings Beat, Sales Rise Y/YSemtech Corporation’s third-quarter fiscal 2025 non-GAAP earnings of 26 cents per share beat the Zacks Consensus Estimate by 8.33%. The bottom line also exceeded management’s guidance of 23 cents and showed a robust improvement from the year-ago quarter’s earnings of 2 cents.Semtech’s third-quarter fiscal 2025 revenues of $236.8 million beat the Zacks Consensus Estimate by 1.81% and exceeded management’s guidance of $233 million. The figure rose 18% year-over-year.SMTC provided strong guidance for the fourth-quarter fiscal 2025. At the mid-point, it now expects growth in net sales, gross, operating and adjusted EBITDA margins. This calls for earnings growth in the current quarter.SMTC’s Q3 Top-Line DetailsSMTC’s better-than-expected top-line performance can be attributed to the impressive year-over-year rise in its end marketsThe growing momentum across the infrastructure and high-end consumer end markets benefited the company. Strength in Signal Integrity and Analog Mixed Signal & Wireless segments was a positive.SMTC’s Q3 Revenues by End MarketSales from the infrastructure market were $65.8 million (27.8% of net sales), exhibiting year-over-year growth of 52.3%. This was driven by solid demand for Semtech’s FiberEdge TIAs, laser drivers and Tri-Edge 50G PAM4 products that led to strong growth in hyperscale data center sales in the reported quarter.Sales from the industrial market were $131 million (55.3% of net sales), up 9% from the prior-year period’s tally. Sales from the high-end consumer market were $40 million (16.9% of net sales), up 6.4% year over year. Strong market demand, along with solid momentum in consumer circuit protection and smart sensing products, drove top-line growth.SMTC’s Q3 Revenues by Product LinesSignal Integrity (30.2% of net sales) sales were $71.5 million in the reported quarter, up 51.5% year over year.Analog Mixed Signal & Wireless (35% of net sales) sales were $82.8 million, up 17.9% from the prior-year quarter’s figures.IoT System and Connectivity (34.8% of net sales) sales were $82.5 million, down 1.2% year over  year.SMTC’s Operating DetailsThe non-GAAP gross margin of 52.4% expanded 110 basis points (bps) from the year-ago quarter’s tally.Adjusted selling, general and administrative expenses for the fiscal third quarter rose 8.5% to $41.9 million from the prior-year quarter’s levels.Adjusted product development and engineering expenses fell 13.4% from the year-ago quarter’s figure to $38.7 million.   The non-GAAP operating margin of 18.3% expanded 810 bps from the prior-year quarter’s tally.Semtech’s Balance Sheet & Cash FlowAs of Oct. 27, 2024, cash and cash equivalents were $136.5 million, up from $115.9 million as of July 28, 2024.Account receivables for the third quarter of fiscal 2025 were $142.5 million, down from $152.9 million in the second quarter of fiscal 2025.The long-term debt was $1.19 billion, which remained unchanged from the previous quarter’s reported figure.Operating and free cash flow for the reported quarter was $29.6 million and $29.1 million, respectively.Semtech Offers Strong Q4 GuidanceFor fourth-quarter fiscal 2025, management expects net sales of $250 million (+/- $5 million). The non-GAAP gross margin is expected to be 52.8% (+/- 50 bps). The non-GAAP operating margin is anticipated to be 19.7%, suggesting an improvement of 140 bps sequentially.Non-GAAP earnings per share are expected to be 32 cents (+/- 3 cents) based on a weighted average share count of 80 million shares.How Have Estimates Been Moving Since Then?In the past month, investors have witnessed an upward trend in fresh estimates.The consensus estimate has shifted 88.1% due to these changes.VGM ScoresAt this time, Semtech has a great Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, the stock was allocated a grade of F on the value side, putting it in the lowest quintile for this investment strategy.Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.OutlookEstimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Semtech has a Zacks Rank #2 (Buy). 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