Analysis Brief: Xilinx Inc. (XLNX)

Xilinx (XLNX) beat the Street consensus in the second quarter.  It has also raised its dividend from $0.14 to $0.16, and currently has a 3.0% yield, high for the tech industry.  Xilinx is a semiconductor company and the global leader in programmable logic solutions with a 51% market share.  The company was founded in 1984.  More after the jump:

Xilinx is headquartered in San Jose, California.  Its customers are primarily communications (46% of revenue) and industrial (31% of revenue).  Geographically, income is 35% north America, 35% Asia Pacific, 21% Europe and 9% Japan.  The company first started paying a dividend in 2004.  Since that time the dividend has increased from $0.05 to $0.16 quarterly, a compound annual rate of 26.2%. 

Last year, fiscal 2009, Xilinx posted earnings (EPS) per share of $1.36.  This year, fiscal 2010, the company is expected to post EPS of $0.95, about 30% lower due to the ongoing recession.  This would be roughly equal to its 2006 number.  Shares are currently trading at $21, or 22x expected 2010 earnings.  Although this PE ratio seems high, Intel (INTC) trades at 44 X earnings while Texas instruments (TXN) trades at 32 X earnings.

On its balance sheet, XLNX has total assets of $2.8 billion.  Long term debt = $352 million or 12.4% of total assets, while total liabilities equal 32% of total assets, a very manageable level.  The companies long term debt and total liabilities have been decreasing every quarter for the last year.  Xilinx has total current assets of $1.7 billion and current liabilities of $233 million for a current ratio of 7.3, so the company is highly solvent.  In the second quarter FY 2010, the company generated $403 million in free cash flow, more than double its total dividend payout for the quarter of $154 million.  In my opinion, the financially of the company look strong. 

In early 2009, the company announced a restructuring program aimed at reducing costs.  This included the elimination of 200 jobs globally and pay freezes for executives.  These measures are expected to save $4 to $5 million quarterly.

Using a conservative EPS estimate of $0.95 EPS, 10% growth over the next 3 years (as a recessionary rebound), followed by 5% reversionary growth, and using a 10% discount rate value, I estimate the value of XLNX shares to be $16.  This means at the current price, $21, the company is slightly overvalued.  However, as a global leader in programmable logic solutions, and given its strong balance sheet, I think Xilinx is worth considering if EPS rebounds or the share price drops to a more reasonable level.

Disclosure:  The author does not own shares in XLNX.

Xilinx is headquartered in San Jose, California.  Its customers are primarily communications (46% of revenue) and industrial (31% of revenue).  Geographically, income is 35% north America, 35% Asia Pacific, 21% Europe and 9% Japan.  The company first started paying a dividend in 2004.  Since that time the dividend has increased from $0.05 to $0.16 quarterly, a compound annual rate of 26.2%. 

Last year, fiscal 2009, Xilinx posted earnings (EPS) per share of $1.36.  This year, fiscal 2010, the company is expected to post EPS of $0.95, about 30% lower due to the ongoing recession.  This would be roughly equal to its 2006 number.  Shares are currently trading at $21, or 22x expected 2010 earnings.  Although this PE ratio seems high, Intel (INTC) trades at 44 X earnings while Texas instruments (TXN) trades at 32 X earnings.

On its balance sheet, XLNX has total assets of $2.8 billion.  Long term debt = $352 million or 12.4% of total assets, while total liabilities equal 32% of total assets, a very manageable level.  The companies long term debt and total liabilities have been decreasing every quarter for the last year.  Xilinx has total current assets of $1.7 billion and current liabilities of $233 million for a current ratio of 7.3, so the company is highly solvent.  In the second quarter FY 2010, the company generated $403 million in free cash flow, more than double its total dividend payout for the quarter of $154 million.  In my opinion, the financially of the company look strong. 

In early 2009, the company announced a restructuring program aimed at reducing costs.  This included the elimination of 200 jobs globally and pay freezes for executives.  These measures are expected to save $4 to $5 million quarterly.

Using a conservative EPS estimate of $0.95 EPS, 10% growth over the next 3 years (as a recessionary rebound), followed by 5% reversionary growth, and using a 10% discount rate value, I estimate the value of XLNX shares to be $16.  This means at the current price, $21, the company is slightly overvalued.  However, as a global leader in programmable logic solutions, and given its strong balance sheet, I think Xilinx is worth considering if EPS rebounds or the share price drops to a more reasonable level.

Disclosure:  The author does not own shares in XLNX.