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Why Power Integrations' Shares Dropped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of chip maker Power Integrations (Nasdaq: POWI  ) fell in early trading today, bottoming out near $34 per share before stabilizing at about a 6% loss. The company managed to beat bottom-line estimates by $0.06 per share, notching $0.49 in adjusted EPS. Revenue missed the mark, coming in at just $76.4 million versus the $81.3 million analyst consensus. Forward guidance was disappointing, as Power Integrations put third-quarter revenue estimates between $76 million and $82 million, well below the Street's expectations of $88.7 million.

So what: Power Integrations also announced a settlement with the IRS for an audit of the company's 2003 to 2006 results. This will help the company substantially reduce its tax burden in the upcoming year to "the high single digits," according to the company's earnings release. The tax benefit may well be offsetting weak guidance, lessening the sting of reduced demand in a tricky macroeconomic environment.

Now what: A P/E of 33 isn't cheap, and the company's bottom line hasn't had a lot of upward momentum in the last two years. With the tax benefit to be baked into Power Integrations' expectations, it seems like the stock may continue to drift sideways until a major catalyst appears.

Want more news and updates? Add Power Integrations to your Watchlist now.

Fool contributor Alex Planes holds no financial position in any company mentioned here. Add him on Google+ or follow him on Twitter @TMFBiggles for more news and insights. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

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Related Tickers

10/26/2016 4:00 PM
POWI $63.80 Up +0.45 +0.71%
Power Integrations CAPS Rating: *****