The word on the Street
The camera-chip designer is nothing if not polarizing. Wall Street's earnings estimates for the quarter range from $0.07 to $0.30 per share with the average working out to $0.13. Revenue targets also vary wildly with a range from $161 million to $230 million, though these guesses cluster toward the lower end. The average sits at $175 million.
The analysts are actually being generous: the midpoint of management's own guidance rests at $0.11 per share and $170 million in revenue. Even the most optimistic forecasts here represent a serious swoon from the year-ago quarter's $0.84 per share on sales of $266 million.
Analysts and major investors are shuffling their cards even now. The last week has seen downgrades from Lazard and J.P. Morgan even as Greenlight Capital's David Einhorn disclosed a brand-new OmniVision stake. The analyst firms both turned buy ratings into holds, citing the rising stock price. J.P. Morgan notes that it might miss out on an "upswing in revenue and earnings," but that fresh competition from Sony
Recall that Needham recently predicted Samsung stealing OmniVision's camera spot in the soon-to-be-released Apple
For what it's worth, Einhorn seems to be in a risk-taking mood. Among the many positions he disclosed last week, you'll also find a large, brand-new stake in floundering smartphone maker Research In Motion
Time to take action?
Taking Einhorn's bullish side with a straight face, OmniVision looks tremendously undervalued at just seven times trailing earnings. The value aspect grows even stronger if you deduct about $410 million of net cash from the market cap to arrive at an enterprise-value-to-EBITDA ratio of just 3.3. To put that figure into perspective, supposed value play Apple trades for 9.9 times trailing EBITDA.
But that's only a discount if you assume that the company can emerge from the crushing load of heavy competition. With or without Apple by its side, OmniVision needs to show a healthy dose of new design wins in smartphones and tablets. PC cameras are obviously not going to save the day, and medical equipment isn't exactly an explosive growth market. If management can't present a bunch of impressive smartphone wins, the value becomes a value trap instead.
Three months ago, OmniVision was a slam-dunk buy that has rewarded opportunistic investors handsomely. Today, it's a risky feast-or-famine play. The only safe bet today is that OmniVision shares won't be trading at $16 per share on Friday -- I just can't say whether it'll go higher or lower. Everything hinges on success in the smartphone market. I'm a cautiously optimistic shareholder, and my bullish CAPScall stays in place, but I won't back up the truck on Thursday.
OmniVision has made me look stupid before. Even David Einhorn doesn't nail every call. But some elite investors never look stupid. You wouldn't believe what those geniuses are buying today while everyone else is selling.