International Rectifier Stock Falls 26% After Downgrade

International Rectifier Corp. shares tumbled 26.4% Friday after a downgrade by an analyst who said the company’s fiscal 2003 guidance was too aggressive.

Banc of America Securities analyst Doug Lee downgraded the stock of the El Segundo semiconductor maker to “underperform” from “market performer,” arguing that its financial guidance for the fiscal year ending June 2003 is too aggressive. Lee said in a note to clients, however, that he was not concerned about the company meeting guidance it gave for the current fourth quarter.

After Lee’s comments, the company issued a statement saying that it sees no change to the guidance it gave in April, when it forecast a 10% rise in fourth-quarter revenue from $178.6 million in the third quarter. However, the company did not reiterate its earlier guidance for fiscal 2003, which called for revenue to rise about 35%, rather than the 25% to 30% it had previously forecast.

That was enough to send investors to the exits. The company’s shares fell $9.85, to close at $27.50 on the New York Stock Exchange.

Analysts, on average, now expect International Rectifier to earn $1.59 a share in fiscal 2003, up from an estimated 75 cents a share this fiscal year, according to Thomson First Call.

International Rectifier, whose chips manage power in electronic devices, also said it expects fourth-quarter gross margin, or the percentage of revenue left after subtracting product costs, to widen about 1 percentage point from 35.1% in the third quarter.

Analysts expect International Rectifier to earn 23 cents to 26 cents a share, with a consensus of 25 cents, on revenue of $196.1 million in the fourth quarter, according to Thomson.

Lee noted the difficulty in gauging the operations of three recent acquisitions and their effect on results because “very few details

Lee also said that 38% of its revenue in the third quarter came from what International Rectifier deems the information technology end-markets, and that this sector continues to suffer from depressed spending.

The stock has also “performed incredibly well over the past several quarters,” Lee wrote, rising 7% this year, compared with a 25% decline in the benchmark Philadelphia Semiconductor Index.

Because the stock has outperformed the index by such a wide margin, and because of his concerns about an earnings shortfall over the next year, Lee asserted that the stock is likely to fall to $25 to $30.