Takeaway: Sneaky season continues, and another medium sized deal is needed, but 17x EV/FCF for a laggard semi is hard to Press on Sep-Q/Dec-Q EPS

We don't think this is a good company. The M&A flywheel has been completely willy nilly. The M&A effort has not been driven by a coherent strategy for product, market, manufacturing, R&D, or go to market. MSCC levers up to get deals done, pays tons of fees to your friendly sellsider's bank in the process, then wastes capital paying more fees in the de-levering process. And when the cold shiver of a revenue miss creeps up their backs? They quietly tuck-in a small deal to seal the quarter. Feh. Not to mention - despite their analog-like gross margins there is no dividend (GAAP NI margins nothing like analog peers), and share count growth / executive ESOP is pretty rich. And lastly, the ragtag collection of assets they have acquired were walking-dead semis companies, each bearing 1-2 shiny bright objects offset by large decaying tracts of no-growth or negative growth revenue.   

MSCC | Moving From Best Idea Short to Short Bench - chart1

However, the big revenue holes are F2Q18-F4Q18, and the upcoming EPS season of F4Q17 results and F1Q18 guidance will be a small miss and beat (in our view) of -2% topline result / +1% topline guidance beat. And who is to say they didn't close/tuck in another quiet deal in F3Q to help massage the topline? Your guess is as good as mine until the 10-K comes out. 

So even with all my wonderful thesis points above, and tons of analysis on this company, I can't honestly tell you to press the Short at 17x EV/FCF for a laggard semi company that is not walking into a disastrous quarter, which they aren't. The Short that could/should play out in the next 3 months is that MSCC will need to announce and finance a new deal between now and year end, and the sooner the better. The deal terms will be ugly, equity may be used to finance it, and it will be clear that the company is buying the target just to plug a hole rather than for some strategic growth decision process. I don't know when that announcement / event will transpire, but my plan as of now is to come back to the Short either right after this EPS season, or right after the next, when they have guided to a fiction for the March-Q and there will be great opportunity to press on a series of misses.

If it is not a short, is it a long? Go have fun with that, I can't follow that rabbit hole with too many other good companies to get long without all the terrible compromises.