We initiate SMTC with a Buy rating and a $52 PT. Semtech Corporation designs and manufactures analog and mixed-signal semiconductors for enterprise, communications, industrial, and consumer end-markets through a portfolio of FiberEdge, LoRa, power, and protection products.
Our buy case rests on three conviction points:
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Our FY26E/FY27E revenues of $980mn (+7.8% y/y) and $1.03bn (+5.1% y/y) sit meaningfully below consensus as we expect market-discounted headwinds from a prolonged CopperEdge recovery and an imminent $250-300mn IoT divestiture. However, we believe the LoRa and FiberEdge franchises will take over and unlock higher margins and EPS expansion in the face of deflationary top-line growth.
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Valuation does not reflect the inflection set-up. We apply a conservative 4.25x/4.50x EV/EBITDA multiple to FY26E/FY27E to value shares, which is supported by historical averages, strategic peer group premiums, and the opportunity for re-rating as transition risks are cleared.
The debate: Can Semtech deliver operating leverage and embedded value capture as legacy business declines? Our view: Yes, with a margin of safety. We build into our model delayed ramp and IoT divestiture disruption as real but limited risks.
Bottom line: R/R skews materially positive at current levels, with 34% upside to our $52 PT driven by misunderstood transition catalysts and discounted valuation.
Valuation dislocation needs to resolve as transition noise dissipates
The arithmetic is compelling: Semtech's transition to LoRa and FiberEdge is structurally altering the margin profile of the company at a time when investors appear fixated on legacy and IoT transitions.