Tags: Linear | Technology | niche | LLTC

Linear Technology Occupies Broad, Centralized Niche

By    |   Tuesday, 12 June 2012 02:51 PM EDT

Linear Technology (LLTC), unlike many technology companies, pays a surprisingly high dividend, yielding 3.4 percent recently. On the other hand, it occupies such a broad, centralized niche in an essential industry that it resembles a defense or energy stock more than some flashy tech issuer. Accordingly, analysts predict predictable, low-risk growth ahead, rather than galloping appreciation.

Linear Technology has been designing, manufacturing and marketing a broad line of high performance analog integrated circuits for major companies worldwide for three decades. The company's products provide a bridge between the analog world and the digital electronics used in industrial, communications, networking, automotive, computer, medical, instrumentation, military, aerospace, and consumer end-markets.

Linear Technology produces power management, data conversion, signal conditioning, RF and interface ICs, and µModule subsystems. Applications for Linear Technology’s high performance circuits include telecommunications, cellular telephones, networking products, tablet, notebook and desktop computers; computer peripherals, video/multimedia, industrial instrumentation, security monitoring devices, high-end consumer products such as digital cameras and global positioning systems, complex medical devices, automotive electronics, factory automation, process control, military, space and other harsh environment systems.

Linear Technology markets its products worldwide primarily through a direct sales staff and through electronics distributors to a broad range of customers in diverse industries. Distributor and direct customers generally buy on an individual purchase order basis, rather than pursuant to long-term agreements.

During fiscal year 2011, international revenues were $1.08 billion or 73 percent of revenues, LLTC reports. Because the company's export sales are billed and payable in U.S. dollars, export sales are generally not directly subject to fluctuating currency exchange rates. Domestic revenues were $405.7 million or 27 percent of revenues.

“The improvement in our bookings, the broad distribution of this strength across all our major end markets, our positive book-to-bill ratio exiting March and the modest improvements we've seen in the macroeconomic environment give us optimism about continuing growth,” LLTC Vice President for Finance Paul Coghlan said in a call with analysts April 18.

“We are estimating that we will again grow quarterly revenues sequentially in the 4 percent to 8 percent range in our fourth fiscal quarter.”

Linear Technology has a market cap of $6.77 billion in a sector, semiconductors, where the average company size is $7.48 billion. Its trailing 12-month P/E ratio is 15.09 and its five-year projected price-to-earnings-growth (PEG) ratio is 4.44, compared to 1.27 for the sector.

Its projected earnings per share growth for the coming year is 18.33 percent, compared to a sector average of 33.93 percent.

Cash flow

Analysts are divided on LLTC shares. Buy or outperform calls are in from Stifel Nicolaus, Longbow, Oppenheimer & Company, and Piper Jaffray. JP Morgan and Friedman, Billings. Ramsey & Co. rate the stock at underperform.

Standard & Poor’s Equity Research rates the stock at neutral. “Our hold opinion reflects our view of the company's solid and profitable business model, balanced by fair valuations. One of the better-run semiconductor companies, in our view, with relatively high margins, LLTC has been able historically to grow sales at an above industry pace by penetrating a broader range of markets while maintaining above-peer profitability,” S&P analysts wrote in mid-April.

“We believe LLTC generally carries less business risk than peers, and has more than enough cash and healthy free cash flows to reduce financial risks related to its leverage. We think LLTC should be able to navigate any economic environment better than its peers.”

Linear Technology next reports on July 24.

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Tuesday, 12 June 2012 02:51 PM
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