Altera Corporation (ALTR): $39 Could Be Right On Sales Target

Altera Corporation (NASDAQ:ALTR) was on the move today and could have a lot more to go. RBC Capital upgraded the specialized semiconductor company to "Outperform" from "Sector Perform" with a price target of $39 – upside potential to target of 17.64%.

Altera Corporation is a global semiconductor company. The Company designs, manufactures, and markets high-density programmable logic devices (PLDs), HardCopy ASIC devices, pre-defined design building blocks known as intellectual property (IP) cores, and associated development tools.

Analyst, Doug Freedman is looking to China to find his $39 target, "We continue to see stronger deployment globally which should support Y/Y growth expectations in the Wireless segment, as builds at China Unicom and China Telecom should augment growth in the China market in 4Q14... Moreover, the transition to 14nm in 2015 should drive share gains and operating margins higher given architectural advantages driven by a strong design team. ALTR fits the mold of a semiconductor company that has become increasingly focused on increasing shareholder returns."

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China Unicom is ranked as the world's third-biggest mobile provider, and China Telecom Corporation Limited is the largest fixed line service and 3rd largest mobile telecommunication provider in the People's Republic of China.

Let's take a look at the company's prospects to see how likely $39 is based on 2015's consensus sales and earnings estimates.

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For next year, analysts project top-line sales of $2.1 billion with $1.81 per share making its way to the bottom line. Since 2009, ALTR traded with an average price-to-sales (P/S) ratio of 5.9 and an average price-to-earnings (P/E) ratio of 19.62.

If Altera hits Wall Street's sales outlook of $2.1 billion in 2015 and trades at the average P/S ratio of 5.9, then the stock would price out at familiar sounding number - $39.55.  Perhaps, P/S is the metric used by Mr. Freedman?

As for EPS, if investors are willing to pay 19.62 times 2015's ALTR's projected profits per share of $1.81 then shares would trade at $35.52, leaving some work to do. To make it to $39 with the five-year average P/E, earnings-per-share need to hit $1.98-$1.99.

Overall: In our opinion, China Unicom and China Telecom will need to contribute anther $0.10 to $0.18 per share in EPS for Altera Corporation (NASDAQ:ALTR) to hit $39 based on its half-decade P/E. However, the stock could have some upside since sales would most likely benefit, as well.