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Andreas in Gainers & Losers,

Investment idea - NVIDIA

I still believe NVIDIA (NVDA), a leading global manufacturer of 3D graphics processors, has good prospects. The company released strong financial results for 3Q FY16 ended on October 25. Sales accelerated 6.5% y-o-y to USD 1.31 bn, above the median consensus of USD 1.18 bn. The reading grew also due to strong demand for GTX gaming solutions of the company, as well as for products related to high-speed calculations and cloud computing. Notably, sales of GeForce GPUs for PCs and laptops gained 12% to USD 1.11 bn, and considerable demand for high-end processors Maxwell was registered. Meanwhile, sales of Tegra processor for smartphones and table computers declined 23% to USD 129 mn. Adjusted operating profit of NVIDIA climbed 16.7% to USD 308 mn, while the operating margin grew 2 pps to 23.6%. Adjusted EPS spiked 17.9% to 46 cents, above the Wall Street median consensus of 42 cents.

NVIDIA closed the third financial quarter with USD 4.73 bn of monetary funds and short-term investment on its accounts. Long-term debt was USD 1.41 bn. Within the reporting period, the company generated a free cash flow of USD 239 mn and spent USD 53 mn on dividend, while the management decided to increase quarterly dividend by 18% to 11.5 cents per share. Within the first nine months of this financial year NVIDIA returned USD 604 mn to its shareholders through dividend and share repurchase, while in FY 2016 payments are expected to total USD 800 mn. In FY 2017, the company is looking to spend around USD 1 bn on dividend and share buyback.

I believe that NVIDIA’s leadership positions on the market of high performance gaming and professional GPUs, as well as the expected launch of a new innovative product line will allow the company to demonstrate strong financial performance in future. Furthermore, NVIDIA hopes its mobile platform Tegra will enjoy more popularity, as it considerably outstrips technological solutions of other companies in this segment in terms of certain parameters.

I confirm the price target at USD 38 and believe this is a lucrative mid-term investment opportunity. The short-term technical target is USD 35.