Why Is Monolithic (MPWR) Up 5.6% Since Last Earnings Report?

A month has gone by since the last earnings report for Monolithic Power (MPWR). Shares have added about 5.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Monolithic due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Monolithic Power Q3 Earnings & Revenues Top

Monolithic Power Systems reported third-quarter 2019 non-GAAP earnings of $1.08 per share, which beat the Zacks Consensus Estimate by a couple of cents. Notably, the figure improved 1.9% on a year-over-year basis.

Revenues of $168.8 million improved 5.5% from the year-ago quarter, surpassing the Zacks Consensus Estimate of $165 million. The reported figure was also higher than management’s guidance of $162 million to $168 million.

Sturdy demand of industrial security applications, 5G based networking products, and smart lighting aided year-over-year growth.

DC to DC segment (94.6% of total revenues) revenues improved 8.1% year over year to $159.7 million. However, Lighting Control (5.4% of total revenues) declined 25.8% to $9.1 million.

Quarter in Details

Computing & Storage (31.3% of total revenues) revenues rose 10.8% year over year to $52.8 million. Design wins in AI applications and high-end servers drove performance.

Industrial (17.1%) revenues advanced 16.1% to $28.9 million, primarily on the back of increased adoption of point of sales systems, security applications and smart meters.

Automotive (14.5%) revenues were $24.4 million, up 23.5%. Higher product sales for applications in smart lighting, infotainment and autonomous driving application products aided growth.

However, Communications (11.1%) revenues declined 1.9% to almost $18.8 million. Consumer (26%) revenues fell 9.4% from the year-ago quarter to $43.9 million.

Non-GAAP gross margin contracted 50 bps from the year-ago quarter to 55.6%. Management had envisioned the figure in the range of 55.3% to 55.9%.

Non-GAAP operating expenses were $42.5 million during the reported quarter, up 4.9% year over year.

Non-GAAP operating income grew 4.4% year over year to $51.4 million. Non-GAAP operating margin (as a percentage of revenues) contracted 30 bps from the year-ago quarter to 30.4%.

Cash, cash equivalents and short-term investments were $418.7 million at the end of the third quarter, up from $366.5 million reported at the end of the previous quarter.

Guidance

For the fourth quarter of 2019, Monolithic Power forecasts revenues between $160 million to $166 million.

Management anticipates non-GAAP gross margin between 55.2% and 55.8%.

How Have Estimates Been Moving Since Then?

It turns out, estimates revision have trended downward during the past month. The consensus estimate has shifted -7.36% due to these changes.

VGM Scores

Currently, Monolithic has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. Following the exact same course, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Monolithic has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

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