Topics Growth Stocks

Mentor Graphics $24.12 - Nasdaq symbol MENT

MENTOR GRAPHICS $24.12 (Nasdaq symbol MENT; TSINetwork Rating: Extra Risk) (503-685-7000; www.mentor.com; Shares o/s: 108.2 million; Market cap: $2.6 billion; Divd. yield: 0.9%) makes systems that improve the design of electronic products and speed up their development. Its systems are used in a range of industries.

Automobile manufacturing is one of the company’s biggest growth areas because of the shift to electronic car systems from mechanical ones: electronics now make up roughly 40% of a vehicle’s production costs.

In its fiscal first quarter, ended July 31, 2016, Mentor’s revenue fell 9.5%, to $254.3 million from $281.1 million a year earlier. However, that still beat the consensus estimate of $245.2 million.

Earnings fell sharply, to $15.9 million, or $0.15 a share, from $43.4 million, or $0.36. That also beat the consensus forecast of $0.09 a share. The latest results suggest the company is on target to make $1.68 a share for 2016—about 70% of its profits should come in the fourth quarter, ending January 31, 2017. Those three months are the busiest purchasing time for its clients.

Customer delays are temporary

The lower earnings in the quarter are mainly because of the high number of customers involved in takeovers. Currently, they are more focused on acquisitions than on closing contracts. Mentor has also introduced new products, which adds to purchasing delays as clients evaluate those systems before ordering.

The company spends a very high 32% of its sales on research. The stock trades at 14.4 times this year’s forecast earnings of $1.68 a share. It yields 0.9%.

Mentor Graphics is a buy.

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