Shares of MACOM Technology Solutions (NASDAQ:MTSI) slumped on Monday after the semiconductor company received an analyst downgrade. This downgrade comes a few months after a disappointing third-quarter report, with MACOM coming up short of analyst expectations and predicting a slowdown in revenue and earnings growth for the fourth quarter. The stock was down about 13% at 11 a.m. EDT.
The downgrade came from an analyst at Stifel who previously maintained a buy rating on the stock. The analyst knocked down that rating to a hold, citing near-term weakness in China, issues with cash flow generation, and poor capital management related to acquisitions as reasons for the downgrade. A new price target of $43 per share represents a steep drop from the previous price target of $57 per share.
Weakness in China prompted MACOM to provide lackluster fourth-quarter guidance in August. The company expects revenue between $165 million and $174 million, up just 11.5% year over year at the midpoint. MACOM CEO John Croteau blamed limited visibility into carrier demand in China for the weak growth outlook, saying that growth in the data center business would not be enough to offset declines elsewhere.
Analyst upgrades and downgrades often prompt big stock moves, but they rarely change the story for investors. In this case, MACOM's short-term issues in China were already known. What remains unknown is how long this weakness will persist. Multiple quarters of lackluster growth could send the stock even lower, while a quick return to faster growth could erase Monday's losses.
MACOM will report its fourth-quarter results sometime in November. The company's guidance for fiscal 2018 will shed some additional light on its ongoing challenges in China.