Power Integrations Stock can supercharge your portfolio

Power Integrations (NASDAQ:POWI)

is a provider of high-performance analog and mixed-signal integrated circuits (ICs) and electronic components for the power supply market. It enables efficient and compact AC-DC power conversion products for power supplies ranging from less than one watt up to 500 watts of output. Its integrated circuits enable the conversion of high-voltage alternating (AC) power from a wall outlet to low-voltage direct current (DC) used for electronic devices ranging from battery chargers, LED lights and smartphones to home appliances. Its SCALE gate controllers are critical components in high-power systems in electric vehicles (EVs), motors, solar and wind turbines, and DC transmission lines. Its products are key components in the clean energy ecosystem movement, enabling the generation and transmission of green and renewable energy in applications measured in milliwatts to megawatts. Its EcoSmart energy-efficient technology prevents billions of kilowatt hours from being wasted, and its integrated circuits eliminate billions of electronics in the AC-DC power supply, door drivers, and LEDs.

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Direct and Indirect Competitors

The company faces stiff competition from other manufacturers of integrated circuits and power conversion components. This includes SkyWater Technology (NASDAQ: SKYT) is a foundry that specializes in volume manufacturing of integrated circuits, power and analog chip providers onsemi (NYSE: ON), Diodes Incorporated (NASDAQ: DIOD), Semtech (NASDAQ: SMTC ), Cirrus Logic (NASDAQ: CRUS) and Silicon Laboratories (NASDAQ: SLAB). Demand has been falling in its consumer segment, which accounts for 60% of revenue. The weakness is mainly due to home appliance sales and is expected to continue as a strong US dollar and inflation continue to put pressure on consumer spending.

The slowdown continues

Power Integrations reported its third-quarter 2022 earnings on November 2, 2022. The company reported earnings per share (EPS) of $0.84 to beat analyst consensus estimates of $0.85 by $0.01. . Revenue continued to fall (-9.4%) year-over-year (YoY) to $160.23 million, below analyst expectations of $164.29 million. The Board of Directors has authorized a $100 share repurchase subject to predetermined price/volume thresholds with no expiration.

More weakness expected ahead

Unfortunately, the company lowered its guidance for the fourth quarter of 2022 with revenue ranging from $120 to $130 versus analyst consensus estimates of $159.89. GAAP gross margins are expected between $55.5 and 56% and GAAP operating expenses are expected between $42 and $42.5 million. Power Integrations CEO Balu Balakrishnan commented: “Demand has continued to weaken, particularly in home appliances and other consumer applications, and inventories have built up in the supply chain. While our near-term revenue outlook is therefore muted, we continue to gain market share in a broad set of end markets while making excellent progress on growth initiatives such as automotive, powertrain, and our proprietary technology. GaN. Our board of directors has committed $100 million for share repurchases, reflecting our strong balance sheet and our high level of confidence in our long-term growth prospects.”

Cowen downgrades to market performance

On November 3, 2022, Cowen downgraded POWI shares to Market Perform with a $65 price target. His analyst, Matthew Ramsay, commented: “POWI has a strong portfolio with GaN gaining ground quickly, but limited visibility of a recovery in consumer-related markets is likely to limit shares to the upside. With our estimates falling sharply, we believe the current valuation appropriately balances looming growth opportunities with consumer weakness.”

Power Integrations Stock can supercharge your portfolio

Harmonic ABCD Weekly Reversal Pattern in Effect

The weekly candlestick chart in POWI indicates an ABCD harmonic bullish reversal pattern. This pattern is made up of three price swings, as indicated on the chart, with an initial drop in price from point A to point B from $106 to $72.50, then a rise in price from point B to point C from $72.50 to $98.92, then a price drop from point C to point D from $98.92 to $65.45 to form a low of $59.16 in the last week of October 2022. ABCD pattern has specific trading rules. Buy territory is when the stock rises to point D, which is $65.45. There is also a weekly market structure (MSL) low that triggered the break through $67.14. This caused the stock to soar through the resistance of the 20 weekly EMA around $72.50 towards the drop of the 50 weekly MA resistance at $80.10. There are two bullish targets measured by Fibonacci retracements from the point A level ($106) to point D (65.45). The first target is located at the 32.8% retracement level at $80.94 and the second target is located at the 61.8% retracement level at $90.51. Stop loss levels remain below point D at the $63.70 level and the $60.01 level. Pullback support levels below that sit at $55.78 and $50.34.

Long-Term Secular Growth Drivers

While near-term headwinds continue to erode Power Integrations performance, long-term secular growth drivers remain. Its gallium nitride (GaN) technology increases efficiency by expanding dollar content. The transition to clean and renewable energy generation is a direct growth driver. The global movement to reduce carbon emissions is a boon for your business. Power Integration has a strong presence in renewable energy, electric transportation, and efficient high-voltage DC transmission. Its Eco-Smart technology saves the electricity consumption of nearly 1.6 million homes by reducing the standby consumption of household appliances and electronic products. The transition to highly integrated power supplies is ongoing, saving labor and material costs while increasing efficiency. High voltage, which has tripled since 2010, continues to expand with advanced chargers, smart products and appliances, LED lighting, electrification, and electric vehicles.

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