In the previous part of this series, we discussed how Cypress Semiconductor (CY) is a highly volatile stock and reacts to market movements. Let’s see what analysts say about the stock.
On June 24, 2016, 64% of the Wall Street analysts monitoring Cypress stock gave “buy” recommendations and the remaining 36% gave “hold” recommendations.
- The analysts’ median target price for Cypress is $11. The stock is currently trading at a 10% discount from the target, at just above $10.
- For rival Integrated Device Technology (IDTI), analysts have set a median target price of $27. The stock is currently trading at a 32% discount from the target, at just above $20.
- Xilinx (XLNX) has a median target price of $46 and is currently trading at a 0.5% discount from the target.
Investors can diversify their holdings and gain a broader exposure to technology stocks through the PowerShares QQQ Trust, Series 1 ETF (QQQ), which has an 8.4% exposure to semiconductor stocks. It has a 1.1% exposure to AVGO and a 0.22% exposure to XLNX.
Cypress not a good bet for dividend seekers
The acquisition of Broadcom’s (AVGO) IoT (Internet of Things) business for an all-cash deal of $550 million has increased Cypress’s leverage and stressed its cash reserves.
With a high leverage, Cypress could focus its free cash flow on debt repayment, which means that dividend payments and share buybacks could be reduced or stopped for a while. The company might resume returns to shareholders by the end of fiscal 2017 or fiscal 2018, when the company reduces its debt-to-EBITDA (earnings before interest, tax, depreciation, and amortization) multiple to 2.5x from the current 3.4x.
Cypress may not be a good investment for dividend seekers. However, Cypress and IDTI may be good stocks for investors seeking to benefit from volatility.