Graphics specialist NVIDIA (NASDAQ:NVDA) is clearly a company ahead of its time. Its peers may be reporting their numbers for Q1 2006, but NVIDIA wrapped that year long ago -- it's already moving into fiscal 2007. The company plans to release earnings news for the first quarter of fiscal 2007 tomorrow.
What analysts say:
- Buy, sell, or waffle? Thirty analysts follow NVIDIA. Eight rate the company a buy, 16 a hold, and six a sell.
- Revenues. Analysts expect 13% year-over-year improvement in sales, to $660.9 million.
- Earnings. Profits are expected to grow much faster, by 56%, to a consensus figure of $0.28 per share.
What management says:
NVIDIA made two apparently contradictory decisions in March, issuing a press release that simultaneously announced a 2-for-1 share split and increased the authorization for its share buyback program by $400 million (raising the ceiling to $700 million total). The latter action was probably taken because the company was close to maxing out its previous buyback plan, having already spent $263 million to repurchase its own shares. The former move was presumably aimed at increasing liquidity after reducing its share count.
But can the company afford this buyback? Judging from last quarter's earnings report, absolutely. CEO Jen-Hsun Huang summed up the company's fiscal Q4 and full-year 2006 performance: "Fiscal 2006 was a milestone year. [NVIDIA] led the GPU and core logic industry on every front -- technology leadership, product innovation, and operational excellence. As a result, we delivered record annual results for revenue, operating income, operating margin, and operating cash flow." Citing trends in the HD-DVD and Blu-ray high-definition video disc formats, Microsoft's (NASDAQ:MSFT) new Vista operating system, 3G telephony, and the next round of gaming consoles, Huang promised "another strong year" in 2007.
What management does:
All of the above should be good for NVIDIA's sales growth. Meanwhile, the company's margin expansion is nothing short of astounding. Over the last 18 months, the company has added 730 basis points to its gross margin. That's impressive in its own right, but by keeping costs under control, the firm further managed to inflate its operating margin by 1,070 b.p., and its net margin by 870 b.p. That's right, folks. In less than two years, NVIDIA has tripled its profitability.
|
Margins % |
10/04 |
1/05 |
5/05 |
7/05 |
10/05 |
1/06 |
|---|---|---|---|---|---|---|
|
Gross |
31 |
32.3 |
33.5 |
35.2 |
36.8 |
38.3 |
|
Op. |
4.2 |
5.7 |
7.8 |
10.8 |
13 |
14.9 |
|
Net |
4 |
5 |
6.8 |
9.5 |
10.9 |
12.7 |
The Fool says:
Commenting on NVIDIA in the Motley Fool Stock Advisor biannual all-picks update, co-lead-analyst David Gardner cited the same metrics shown above as contributors to the company's success. As for the few skeptics still calling NVIDIA a "sell" based on its loss of Microsoft's Xbox 360 business to rival ATI Technologies (NASDAQ:ATYT), David cautioned that we should "remember that NVIDIA does not simply sell chips for computers and games. And in any case, its chips will go into Sony's PlayStation 3, due out in the spring," concluding that "NVIDIA has been a good performer for us and I would add to it here."
Competitors:
- Intel (NASDAQ:INTC)
- Silicon Motion (NASDAQ:SIMO)
- Silicon Image (NASDAQ:SIMG)
- Texas Instruments (NYSE:TXN)
Fool contributor Rich Smith owns shares of Intel, which is a Motley Fool Inside Value pick. The Fool has a disclosure policy.
