Research firm Broadpoint AmTech, which has been on top of the solid rally in specialty chipmakers, yesterday raised its earnings estimates and price target for Omnivision (OVTI), a chipmaker that specializes in imaging silicon for applications such as cameras in mobile phones. OVTI, a favorite of the momentum investing crowd, had huge moves from 2002-2006, but then stumbled badly in 2008. Broadpoint AmTech analyst Doug Freedman seems believes it will rally on faster-than-expected earnings growth tied to smartphone growth and other markets driving the adoption of Omnivision's imaging technology. The favorite speculation among investors now is whether it will gain entry into Apple's i-Business. It could also ride the wave of growth of cameras and imaging technology in smartphones in general. Here are some snippets from Broadpoint AmTech's research note, issued yesterday:

OVTI: Maintain our Buy Rating and Raise our Price Target to $24 from $20 We are raising our price target on OVTI to $24 as we continue to expect strong July and October results on higher ASPs derived from richer mix of higher MPx OmniBSI in smartphones ($4+ for 5-8MPx), while CameraCube also ripens VGA mix on the transition to primary sensors (2-3 quarters out).

• Second Half OmniBSI, CameraCube Story Approaches. Though we recognize that April lacks meaningful catalysts, we believe the July and October quarters will provide OVTI an opportunity to “flex its muscles” as seasonally strong selling periods drive growth in newer OmniBSI (3-8MPx) and CameraCube initiatives, with improving yields on volume ramps that should lift margins (we conservatively believe towards 28% for FY11 vs. 25% currently).
• Margin Profile Only to Get Better. We believe OVTI continues to grow margins due to costs advantages (largely at the low-end, including reflowable CameraCube), evidenced by January’s 70bps of margin expansion despite a 7% q/q ASP decline. Looking forward, we believe margin levels could surprise even our estimates (at 28% exiting FY11) driven by: 1) continued cost advantages; 2) material contributions from OmniBSI-2; 3) transition of CameraCube into a primary (~2-3 quarters out); and 4) a larger than expected TAM (robust consumer + emerging markets). We highlight that we expect blended ASPs to rise to $1.39 (F4Q11, April) from $1.18, assuming 3MPx+ units grow to 24% of mix from 9% currently.

In addition, Broadpoint says that in general, Wall Street is underestimating the opportunity in sensor growth in emerging markets and secondary markets such as medical, automotive, and security/surveillance sectors. That is leading Broadpoint to rise its estimates 48% and 39% above the Street consenses for this year and next. Current extimates are $1.35 and $1.68 for FY11 and FY12, respectively. They're reiterating the buy rating and raising the price target to $24.

The note does point out the real potential in OVTI's share growth. With the stock currently trading at $18 on consensus estimates of about $1 for 2010, that gives it a P/E multiple of about 18. But if Broadpoint is right and estimates can climb to $1.30 with a P/E multiple expansion to 20, that could justify a stock price of $26 or higher.