We are neutral on Xilinx

Xilinx Inc. (NasdaqGS: XLNX)                                                                11/16/2012

Last Price: $32.89

VIEW: NEUTRAL

Xilinx, Inc. designs, develops, and markets programmable platforms worldwide. Its programmable platforms include integrated circuits in the form of programmable logic devices (PLDs); software design tools; targeted reference designs; printed circuit boards; and predefined system functions delivered as intellectual property cores. The company was founded in 1984 and is headquartered in San Jose, California.

Sector: Technology                                                 Industry: Semiconductor – Integrated Circuits

Highlights:

Xilinx is the larger player in a near-duopoly with Altera ALTR in the programmable logic device, or PLD, chip space. XLNX has a market cap of $8.58 billion. The stock closed yesterday’s trading session at $32.89. In the past year, the stock has hit a 52-week low of $30.00 and 52-week high of $37.74. Technical indicators for the stock are neutral.

GROWTH AND BALANCE SHEET

Xilinx sales were $544 million in the September quarter, down 7% but within the guidance towards the lower end of company’s guidance. Weaker-than-anticipated sales from industrial and A&D, as well as computer and data processing, more than offset better-than-expected sales from wireless communications. Net income for the quarter was $123 million or $0.46 per diluted share. Cash and investments increased $61 million to $3.2 billion. They have approximately $1.3 billion in convertible debt, and net cash position is approximately $1.9 billion. Days sales outstanding decreased 3 days in the September quarter to 37 days. The total Debt/Equity of 33.20% is high enough and above the industry average.

VALUATION

XLNX has a PEG ratio of 2.15 above the industry average. Current PE at XLNX stands at 17.78, below the industry’s average of 19.16. The stock is currently trading below its intrinsic value of $35 this suggests that XLNX is undervalued at these levels. The beta of 1.28 implies high volatility of the stock with respect to the S&P 500. For investors looking at dividend paying stocks, Xilinx’s payment of a dividend gives the stock a yield of 2.50%, and is covered more than 3 times by its earnings.

RECOMMENDATION for next 6 months: We initiate our coverage with NEUTRAL. The company has demonstrated a pattern of neutral technical signs. Shares are 21.96% higher year to date as of the close of trading yesterday. Our overall score for XLNX is 5.17

For options trading we suggest:

• Buy the January 2013  call with a strike of 34.00 priced at $0.96 per contract
• Sell the January 2013  call with a strike of 36 priced at $0.59 per contract
• Buy the January 2013 put with a strike of 30.00 priced at $0.40 per contract
• Sell the January 2013  put with a strike of 28 priced at $0.22 per contract
• Net Debit to start: $0.55
• Maximum risk: Net debit

NEWS and CALENDAR

Tuesday November 13, 2012 – Xilinx 20nm All Programmable Portfolio Builds on 28nm Breakthroughs to Stay a Generation Ahead

Monday October 29, 2012 – Xilinx 20nm All Programmable Portfolio Builds on 28nm Breakthroughs to Stay a Generation Ahead

XLNX Strengths

• Brand Name
• Market Leader
• Good dividend

XLNX Weakness

• High R&D cost
• Increased Competition within PLD’s

Stock valuation model

The model rates stocks from 1 to 10, with 10 being the best using a system of advanced mathematics to determine a stock’s expected risk and return. I am using different fundamental and technical factors in order to rank a stock.

Intrinsic value of the stock

Investors should buy stocks selling at a discount to their intrinsic value, and then patiently wait for the fair value of their investments to be realized.

XLNX’s intrinsic value is $35.00 the current price is $32.89, the stock trades 6% below its fair value.

Financials

The financial health of the company the higher the better, we evaluate all the financial ratios of the company.

Sentiment

Investor’s sentiment for the stock

Analyst ratings

The model assigns a value according to analyst’s recommendation for the stock.

Earnings Consistency

We are searching for EPS numbers that are better than the previous year’s. One dip is allowed, but the following year’s earnings should be higher than the previous year. XLNX’s annual EPS for the last 5 years were 1.24, 1.31, 1.29, 2.40, 1.95 this type of earnings action is not favorable.

Total Debt/Equity

The company must have a low Debt/Equity ratio, which indicates a strong balance sheet. The Debt/Equity ratio should not be greater than 20% or should be less than the average Debt/Equity for its industry

XLNX’s Total Debt/Equity of 33.20% is not acceptable.

EPS This Quarter VS Same Quarter Last Year

The EPS growth for this quarter relative to the same quarter a year earlier is above the minimum 15% that this model likes to see for a “good” growth company. Stocks with improving earnings are worthy of your extra attention.

XLNX’s EPS growth for this quarter relative to the same quarter a year earlier is -2.13% well below our target.

Annual Earnings Growth

This stock valuation model looks for annual earnings growth above 12%, but prefers higher than 20%.

XLNX’s annual earnings growth rate over the past five years is 13.80%, above our target growth rate.

Current Price Level

Investors should keep an eye open for stocks that are trading within 10% of their 52-week highs, as it is likely to continue in its upward trend.

XLNX’s 52 week high is $37.74 current price is $32.89, is 14% below the 52 week high.

P/E Ratio

The Price/Earnings (P/E) ratio, based on the greater of the current PE or the PE using average earnings over the last 3 fiscal years, must be “moderate”, which in this model states is not greater than 15. Stocks with moderate P/Es are more defensive by nature.

The company has a P/E ratio of 17.78 the average industry P/E ratio is 19.16 and is also above the S&P 500 P/E ratio of 15.30.

Insider Ownership

When there is strong insider ownership which we define as 8% or more, management is more likely to act in the best interest of the company, as their interests are right in line with that of the shareholders.

Insiders own 0.13% of XLNX stock. Management’s representation is not large enough. This does not satisfy our minimum requirement; companies that pass this test are more attractive to our valuation model.

Technical Analysis

The model is using several technical indicators (MACD, RSI, MFI, OBV, position Indicators) to forecast the trend of the stock for 6 and 12 months, and assign a value.

XLNX is trading in the range of $32.12 – $34.52 in the past 30 days. The Commodity Channel Index (CCI) is bullish for XLNX. XLNX stock has been showing support around $32.20 and resistance in the $34.10 range. Our indicators give a neutral view on XLNX.