NSM: Mixed Signals on Analyst Day

Analysts hoofing it over to National Semiconductor’s (NSM) annual analyst day and shareholder meeting in Santa Clara came away with more questions than answers about where growth will come from and whether the stock will continue to be supported by a rebound in global chip sales.

Jonathan Pitzer, Credit Suisse: The companies sales remain vulnerable to the onslaught by Texas Instruments (TXN) in the analog chip market. He notes the company is promising 100% EPS growth on just 27% revenue growth going forward, owing to operating expense cuts. However, a lot of that hinges on the company building its business selling chips for Light Emitting Diode (LED) systems to $100 million annually within 2-3 years. Pitzer maintains a “Neutral” rating on the shares and a $14 price target.

Christopher Danely, JP Morgan: The company’s gross profit margin of 61% of sales can eventually reach 70% on a better mix of chips sold and an increase in factory utilization rates. However, the “issue is growth” cautions Danely. Many other analog firms offer the same product strengths in power-management chips, and National has average a 3% drop in revenue, on average, the last three years. The company’s growth will be “challenged” unless it cuts prices. Nevertheless, Danely has an “Overweight” rating on the stock. His price target is $14.

Craig Ellis, Caris & Co.: Ellis walked away with greater clarity about sources of revenue growth, he writes, including the aforementioned sales of LED parts, parts for solar panel systems, and chips for automotive entertainment systems and safety systems. These three things could lead to an additional $65 million per quarter in revenue for the firm. However, he expects much of this is baked into investor expectations, and the bear attitude — “show me” — may dominate the stock. Ellis maintains an “Above Average” rating and a $20 price target.

Those are decidedly tepid views compared to Citigroup’s Terence Whalen, who last Thursday raised his rating on the stock to “Buy” from “Hold,” with greater conviction that the company will see gross margin leverage in coming quarters.

National shares today are up 24 cents, or 1.7%, at $14.83.