Debating PMCS: Goldman Downgrades, J.P Morgan Upgrades

There are pair of conflicting research reports this morning on communications chip maker PMC-Sierra (PMCS); Goldman Sachs downgrades the shares, while J.P. Morgan did the reverse. Here’s a quick rundown on the two calls:

• Goldman Sachs analyst James Schneider cut his rating on the stock to Neutral from Buy, largely on a valuation basis. He maintains a $10 target price on the stock, which yesterday closed at $9.56. Schneider notes that the stock is up 110% since he issued a Buy rating on the shares last October. He says the stock now has largely priced in the strong fundamental outlook he has been expecting for some time now. He remains bullish on the company’s fundamentals, seeing strong demand in China, a ramp in the company’s RAID-on-a-chip storage business at Hewlett-Packard, and a rebound in fiber-to-the-home deployments. But he adds that the stock is now more fully valued at 21x his 2010 EPS estimate, versus 22x for the semi group overall.


• J.P. Morgan analyst Shawn Webster raised his rating on the stock to Overweight from Neutral, with a new price target of $11.50, up from $9.50. He writes that checks find that demand in PMC’s storage segment has been slightly better than expected; he thinks Q3 revenue will be above the mid-point of the guidance range of $125 million to $135 million. “While we are concerned on peaking revenue growth rates for semiconductors in Q1, we believe higher peak margins and share gains should drive out-performance of PMCS stock,” he writes.

Looks like Goldman is the axe on the stock today: PMCS is down 44 cents, or 4.6%, to $9.12