NEW YORK, July 27 /PRNewswire/ -- S&P Equity Research Services has downgraded its opinion on LSI Logic (NYSE: LSI; $8.16) to "Strong Sell" (1-STARS out of 5) from "Hold" (3-STARS). LSI posted second-quarter earnings per share of $0.13 vs. $0.06, which was $0.03 above our estimate. Revenues rose 2% year to year, underperforming peers, and 3% quarter to quarter. Guidance for third-quarter sales is below our estimate. Two consumer semiconductor product lines are phasing out. We think LSI is apt to build up its consumer lines by acquisition, which would be expedient, but potentially expensive. Given our outlook for lackluster sales vs. peers, we believe LSI could trade down to a price-to-sales multiple at the low end of its historical range. As such, we have lowered our 12-month target price to $5 from $11.
Risks to our recommendation and target price include the possibility of higher demand for semiconductors than we expect, new design wins by LSI, and any acquisitions integrating more advantageously than we anticipate.
Thomas Smith, CFA Semiconductors Equity Analyst Standard & Poor's Equity Research Services
The analyst quoted above is a Standard & Poor's Equity Analyst. He has no affiliation with any company he covers. He has no ownership interest in any company he covers. Standard & Poor's other affiliates may provide services to the companies that are the subject of this report.
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