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Microchip’s Q1 EPS beat estimates, issues strong Q2 view

Microchip TechnologyMicrochip Technology Incorporated (NASDAQ: MCHP), the manufacturer of micro-controller and analog computers, posted a better than expected fiscal 2017 first-quarter earnings.

However, the revenue missed the Wall Street estimates. Considering the y-o-y growth in revenue and appreciable second-quarter revenue and earnings guidance.

We believe that any decline in the share price should be construed as an opportunity to take a long position.

At the end of Monday’s trading session, the shares of Microchip stood at $61.21.

The Chandler, Arizona-based company announced a growth in the net sales to $799.41 million, from $533.95 million in the similar period last year. The revenue missed the Zacks estimate of $821.41 million. Excluding the distributor revenue recognition adjustment, the non-GAAP net sales for the first-quarter climbed to $844 million, from $533.95 million in the corresponding period last year.

Microchip Technology

During the first-quarter, the company recorded a net loss of $113.36 million or $0.53 per share, compared to net profit of $130.67 million or $0.60 per share in the prior year’s similar quarter. The net loss from the continuing operations was $109.23 million or $0.51 per share, against net profit of $130.46 million or $0.60 per share. Excluding items, the non-GAAP net profit for Q1 2017 was $193.98 million or $0.84 per share, compared to $148.94 million or $0.69 per share in the Q1 2016. The non-GAAP net profit topped the analysts’ estimate of $0.74 per share.

Microchip also presented its fiscal 2017 second-quarter outlook. The company anticipates second-quarter net sales in the range of $844 million to $877.8 million. The net income is expected to be between $192.7 million and $213.2 million. On a per share basis, the Q2 earnings are forecasted in the range of $0.83 to $0.91 per share.

During the quarter ended June 2016, the company introduced the semi-conductor industry’s first LoRa (Long Range Radio) technology evaluation kits, which allows customers to build a Low-Power Wide-Area Network (LPWAN) in Europe or North America. Apart from introducing a hardware cryptography-enabled 32-bit microcontroller for the Internet of Things (IOT) applications, the company also launched the most effective PIC32 family with Core Independent Peripherals. Thus, considering the strong revenue growth and impressive guidance, we recommend traders to remain long in the counter.

Following the results, the stock broke the resistance of 58 (expected to act as support now). However, there lies a gap between 57 and 60. The RSI is also nearing the reading of 70. This indicates that the gap will be filled when the share price retreats to re-test the S1 support level of 58. A firm uptrend can be expected once the gap gets filled up. The uptrend will be aided by the impressive revenue growth and strong Q2 guidance.

Microchip Technology Stock Price: August 16th 2016

Thus, a binary trader can invest in a one touch call option contract with expiry date in the second week of September. The binary trader should also make sure that the target price for the contract is not more than $67.

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