William L. Moore
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Maxim's Valuation No Longer Attractive; BMO Lowers To Market Perform

With the valuation of Maxim Integrated Products Inc.  having improved and the company taking several right strategic steps, BMO Capital Markets lowered its rating on the chipmaker to Market Perform from Outperform. That said, the firm maintained its price target on shares at $39, given its belief that shares are now fairly valued.

While noting that Maxim was trading at a meaningful discount to its own five-year median levels and its analog peers in January 2014, analyst Ambrish Srivastava noted that it had caught up on several metrics, including enterprise value/sales, EV/EBITDA and P/E bases.

The firm also commended the company's efforts in moving away from single-customer focus and targeting fast-growing markets such as the handsets. BMO Capital Markets also mentioned the company's Volterra acquisition, fab closures, lowering direct & indirect expenses, capital intensity and boosting free cash flow as steps in right direction.

The brokerage sees the speculation of Maxim being a takeover target as a far fetched idea, given the company's current unattractive valuation. According to the firm, a takeover of Maxim is unlikely unless a potential acquirer could offer a premium by convincing investors of Maxim's top-line and earnings per share growth, as well as returns. Cost synergies also offers limited potential, given Maxim's recent cost cutting.