Goldman No Longer A Xilinx Bull Despite Unchanged Positive Outlook

Programmable logic devices supplier Xilinx, Inc. XLNX remains poised to take advantage of longer-term trends, but the stock's valuation no longer warrants a bullish stance, according to Goldman Sachs.

The Analyst

Toshiya Hari downgraded Xilinx from Buy to Neutral with an unchanged $122 price target. The stock was also removed from Goldman's Buy List. 

The Thesis

Xilinx stands to benefit from its exposure to multiple high-growth industries, including 5G, data center, autonomous vehicles, and adaptive driver assistance systems, Hari said in the downgrade note. (See the analyst's track record here.) 

The company's 5G business is already reflected in its numbers, as the communications segment revenue grew 34 percent year-over-year in fiscal 2019, he said. 

The demand for Xilinx's product offerings in the data center space is known, and management guided to $500 to $600 million in revenue by fiscal 2021 during its analyst day presentation in mid-2018, Hari said. 

The bullish case for Xilinx is "better appreciated" now than it was last year, the analyst said. Since the start of 2018, consensus revenue estimates for 2019 have risen 22 percent and EPS estimates have moved higher by 19 percent, he said. 

Over the same time period, Xilinx's stock NTM P/E expanded from 27 times to 36 times and is now 43 percent above its three-year median.

Xilinx's stock warrants a premium multiple versus its semiconductor peers given expectations for above-average growth coupled with high and stable gross margins, Hari said. Yet the stock's 88-percent return since the start of 2018 implies a "more balanced" risk-reward profile, he said. 

Commenting on Xilinx's fiscal fourth-quarter report, the analyst said the results were mostly in-line with expectations, and guidance arrived better than expected.

While the print had its "fair share" of positives and negatives, Hari said, Goldman's fiscal 2020 and 2021 estimates remain above the Street's. 

Price Action

Xilinx shares were plunging 16.6 percent to $116.51 at the time of publication Thursday. 

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Photo courtesy of Xilinx.