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Why Shares of MaxLinear, Inc. Jumped Today

By Bradley Seth McNew – Nov 8, 2016 at 12:55PM

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The chipmaker posted surprisingly good earnings this quarter, but next quarter's sales could be a problem.

Image source: Getty Images.

What happened

Shares of microchip company MaxLinear, Inc. (MXL -1.86%) rose nearly 12% by the end of the trading day today following release of the company's Q3 earnings. Results included net income of $9.7 million, which beat analyst expectations, and was more than six times higher than the prior year's $1.6 million.

So what 

Though sales rose only 1% year over year, on a per-share basis, MaxLinear earned $0.14, up from $0.03 in Q3 2015. The company reduced costs and drove gross margin higher, from 53.6% in 2015 to 57.6%. Following this positive earnings result, the stock was also upgraded by analysts at Needham, who put a price target of $22.50 on the stock according to Investor's Business Daily. The stock closed around $21.30 today.

Now what

MaxLinear shares are up 45% year to date after today's rise, thanks to the company's continued strong performance. While today's strong results are a positive sign for the company's operating success, investors need to be watchful in Q4, as the company has noted that some of its legacy products, such as its entropic analog channel stacking outdoor unit, are declining faster than previously thought.

With that in mind, management has actually forecast somewhat conservative Q4 expectations that could look like slowing growth when they get posted in early 2017. For Q4, the company now expects sales in the range of $85 million and $89 million compared to Q4 2015 sales of $98.9 million. 

Looking beyond Q4, however, CFO Adam Spice said during the earnings call that, "We continue to fund strategic development programs targeted at delivering attractive top-line growth as we look forward into 2017 and beyond, with a particular focus on infrastructure initiatives and our goals of increasing the operating leverage in the business."

Seth McNew has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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