Citi said that the correction in chip equipment stocks created a buying opportunity. Stocks in the sector are now trading at a discounted price to the benchmark S&P 500 as well as the PHLX Semiconductor Index.
Citi analyst Atif Makik said in a Monday research note that the sector looks attractive now after a “sharp” correction that took place during the second half of the last year due to weak demand for smartphones from China weighing on share prices.
Malik said that the “risk-reward appears to be skewed upward” and has upgraded 5 low-key stocks into a “Buy Rating” by assigning price targets which show potential for double digit gains in each of the stocks.
These five stocks include Advanced Energy Industries (AEIS), FormFactor Instruments (FORM), MKS Instruments MKSI, Nova Instruments NVMI and Veeco Instruments VECO.
ICD looks at three of the stocks and how they’re currently stacked.
Advanced Energy: Target price $138
Advanced Energy Industries develops precision measurement, control and power conversion technologies for the manufacturing of semiconductors, flat-panel displays, data storage, telecommunications equipment, industrial coatings and medical devices.
The majority of the company’s revenue comes from the United States. Asia and Europe make up the remainder.
Citi has raised its price target for the stock of the electronics manufacturer to $138 from the previous $110 price objective.
At 12:47pm, the share price of AEIS traded in the green at $122.73.
MarketBeat data shows that Advanced Energy Industries is rated “Moderately Buy” with a consensus price target of $123.38.
The market capitalization of the company is smaller than that of its peers. This could be due to factors like growth expectations or operational capability.
The company’s last quarterly earnings report was released in October. Earnings of $0.98 per share were reported, exceeding the analysts’ consensus estimate by $0.07
The revenue for the quarter was $374.20 millions, which is slightly higher than the forecasted $372.49million.
Although its revenue growth for the three months ending September 30 decreased by approximately 8.73% its net margin exceeds industry averages.
Return on Equity also exceeds the industry benchmarks, indicating robust financial management and efficient usage of shareholder equity capital.
Recently, several institutional investors have made changes to the positions they hold in the stock.
Earnest Partners increased their stake in Advanced Energy Industries during the second quarter by 13.5%, while The Manufacturers Life Insurance Company increased its stake by 22.4%.
FormFactor : target price $51
Citi has raised their price target for FormFactor to $51 from $44.
Its share price was $46.73 on Monday, up more than 5% from the opening of the day.
According to data from MarketBeat FormFactor has an average rating “Moderate buy” and a consensus price target of $56.00.
In Q3, the company reported $207.9 millions, a record for the company. This was a 21.2% increase year-over-year. The statutory earnings per share (EPS), which is a measure of the company’s profit, was US$0.24, a 27% increase over expectations.
Ten analysts who cover FormFactor predict revenues of US$838.5m by 2025.
According to Simply Wall St., FormFactor’s earnings have grown at an average annual growth rate of 2.6% while the semiconductor industry has seen earnings grow at a 20.2% annual rate.
The revenue growth rate has been 2.5% on average per year. FormFactor has a return on equity of 14.2% and net margins that are 18.3%.
MKS Instruments: Target price $130
Citi has set the price target at $130 for MKS.
According to InvestingPro, analyst targets range between $119 and $160. Eight analysts have recently revised their earnings expectations for the upcoming quarter upwards.
Citi’s upgrade reflects MKS Instruments’ diverse product portfolio in the semiconductor end-market, especially in tech and deposition process.
The company excels in the semiconductor equipment market during upcycles. This is due to its strong position in the growing deposition and etch markets.
MKS Instruments has an EBITDA (earnings before interest and taxes) of $871 million. It also boasts a robust liquidity with current assets exceeding short term obligations by 3.4x. This underlines its solid financial standing.
Citi reports that the company has already managed inventory adjustments in the logic, DRAM and NAND sectors. Corrections in the NAND sector are expected to continue into the first half 2025.
MKS Instruments announced the construction of a semiconductor factory in Malaysia to diversify manufacturing risks.
The company expects Q4 revenue between $910 and $950 millions, with semiconductor revenue at $380million.
Citi analysts highlight the potential of MKS to leverage AI driven advancements in areas like advanced packaging substrates.
The recent acquisition of Atotech has already begun to produce synergistic gains, which contribute to the positive outlook.
This post, From Advanced Energy to FormFactor : 5 low-key chips equipment stocks Citi wants you to purchase, may be modified as new information unfolds
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