SMART Global Holdings, Inc Is Still An Intelligent Buy SMART Global Holdings (NASDAQ: SGH) is very well positioned as what we think of as the third-tier in the microchip supply chain. first, there are the...
By Thomas Hughes •
This story originally appeared on MarketBeat
A Transformational Year For SMART Global Holdings, Inc
SMART Global Holdings (NASDAQ: SGH) is very well positioned as what we think of as the third-tier in the microchip supply chain. first, there are the manufacturers of equipment for making microchips like KLA Corporation, and then there are the actual makers of those chips. SMART Global Holdings takes those chips and turns them into the components, capsules, and modules used by the next tier of businesses and those components are all in high demand. With the shares trading and only 10 times next year's earnings, we feel this stock is not only a fantastic growth story and one with longevity but it's also wickedly undervalued.
SMART Global Holdings Beats and Raises, Shares Advanced
SMART Global Holdings had a great fiscal third quarter and one supported by organic growth as well as the acquisition of Cree LED. Cree LED manufacturers all manner of LED components and applications so it's likely their products are in your home if not your computer right now. The company's revenue of $437.73 million is up 55.6% from last year and beat the consensus by $22.25 million or 530 basis points. To keep this in perspective, last year's $281 million was up nearly 20% from the previous year so this year's comp is very significant. On a two-year basis, including both acquisitions and organic growth, the company's revenue is up nearly 100%.
Moving down the report, the margin and earnings results are a little mixed but there are mitigating factors to be aware of. While the company's GAAP eps missed by $0.90 and produced a loss of $0.30 it is because of share-based compensation, intangible amortization, and fees related to debt. On an adjusted basis margins widened from the previous year to produce non-GAAP EPS of $1.39. This is double the previous year and beat the consensus by $0.30. More importantly, the company feels sales momentum will continue into the fourth quarter and raised the full-year guidance because of it.
SMART Global Holdings is guiding net sales to a range of $440 to $480 million compared to the consensus of $439 million. The gross margins should come in the range of 22% GAAP and 24% adjusted to drive adjusted EPS of $1.60 compared to the consensus of $1.23. Based on what we're seeing, we expect to see the company's results come in at the top end of the range if not beat It.
The Analysts Are Driving The Stock Higher
The analysts are already upping their targets and their ratings in the wake of the Q3 earnings report. So far there have been four major sell-side reports two of which raised their rating from a neutral or hold to a buy and all for raising their price targets. Between them, their consensus is $69.75 compared to the broader consensus of $65 which is good for about 40% of upside from the most recent close. Based on the trend in analyst sentiment and the guidance we expect to see the consensus estimate trend higher over the next quarter.
The Technical Outlook: SMART Global Holdings Rockets Higher
Shares of SMART Global Holdings advanced more than 5% in early pre-market trading to confirm support and trigger a buy signal. This signal is in line with the underlying trend and should take price action up to the $56 level at least. A break above $56 would be very bullish and put the stock in new all-time high territory. In that scenario, we see the $65 to $70 range as a conservative estimate for future prices. 
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