ARM valuation looks attractive to RBC and Credit Suisse analysts

Analysts at RBC Capital Markets and Credit Suisse were among those reiterating positive ratings on ARM Holdings, after the computer processor group reported second-quarter results on Wednesday.

RBC retained its 'outperform' recommendation and said ARM's dollar revenue and profits were in line with expectation, though forex rates impacted the company's sterling-reported numbers, with an actual USD/GBP rate of 1.56 compared to consensus expectations of 1.51.

Sales of $357m were up 3% quarter-on-quarter and 15% year-on-year, and bang in line with consensus. Adjusted earnings before interest and tax of £121m, with a 52.9% margin, compared to a £123m consensus. Adjusted earnings per share of 7.28p due to slightly higher tax rate at 16.4% was short of consensus 7.46p.

Royalties and licensing rates were both are in-line as ARM continued to outgrow the industry materially, with 54 processor licenses signed - the highest ever in a quarter.

RBC said that with customers continuing the switchover to higher royalty rate v8 processor architecture in mobile and market share gains continuing outside mobile, ARM "should by definition continue to outperform the industry".

The Canadian bank said ARM's valuation "looks attractive" as a forward p/e ratio of 27.5 times is cheap versus its historical range of between 30 and 40 times.

Credit Suisse, which has the same 'outperform' rating on the shares and a target price of 1,300p, said this was a "solid" set of numbers, with the "content growth and share gains story on track".

Extrapolating across the full year, the Swiss bank said it believed that consensus estimates for top-line and EPS may remain largely unchanged.