By Correction in chip equipment stocks has caused a buying opportunity, Citi said on Monday, with stocks in the sector now trading at a discount to both the benchmark S&P 500 and the PHLX Semiconductor Index.
Citi analyst Atif Malik said in a research note Monday that the sector now looks attractive after a “sharp correction” that took place in the second half of the year due as weak demand from China for smartphones weighed on share prices.
Malik said the “risk-reward appear skewed to the upside” and has upgraded five low-key stocks to a “Buy rating” assigning price targets that show potential for double-digit gains in each stock.
These five stocks are Advanced Energy Industries (AEIS), FormFactor (FORM), MKS Instruments (MKSI), Nova (NVMI), and Veeco Instruments (VECO).
Invezz takes a look at three of the five stocks and how they are currently stacked:
Advanced Energy: target price $138
Advanced Energy Industries develops precision power conversion, measurement and control technologies for the manufacture of semiconductors, flat panel displays, data storage products, telecommunications network equipment, industrial coatings, medical devices, solar cells, and architectural glass.
A majority of the firm’s revenue is generated in the United States, with the rest primarily from Asia and Europe.
Citi has set $138 as the target price on the electronics maker’s stock, up from their previous price objective of $110.
The share price of AEIS was trading in the green by 3.51% at 12:47 pm, at $122.73.
According to data from MarketBeat, Advanced Energy Industries has a consensus rating of “Moderate Buy” and a consensus target price of $123.38.
The company’s market capitalization reflects a smaller scale relative to peers, which could be attributed to factors such as growth expectations or operational capacity.
The company released its last quarterly earnings report in October, reporting earnings of $0.98 per share for the quarter, surpassing analysts’ consensus estimate of $0.91 by $0.07.
Revenue for the quarter came in at $374.20 million, slightly exceeding the forecasted $372.49 million.
While its revenue growth over three months as of September 30 declined by approximately 8.73%, its net margin surpasses industry averages.
Return on Equity also exceeds industry benchmarks signifying robust financial management and efficient use of shareholder equity capital.
Several institutional investors have recently made changes to their positions in the stock.
Earnest Partners increased its stake in Advanced Energy Industries by 13.5% during the second quarter, whereas The Manufacturers Life Insurance Company boosted its stake in the chipmaker by 22.4% during the same quarter.
FormFactor: target price $51
Citi has given a price target of $51 on FormFactor, up from their prior price target of $44.
Its share price on Monday stood at $46.73, up by more than 5% since the day’s open.
Based on data from MarketBeat, FormFactor currently has an average rating of “Moderate Buy” and a consensus target price of $56.00.
In Q3, the company posted $207.9 million, an all-time company record which was a 21.2% year-over-year increase. Statutory earnings per share (EPS) came in at US$0.24, 27% ahead of expectations.
The ten analysts covering FormFactor have predicted revenues of US$838.5m in 2025.
According to Simply Wall St, FormFactor has been growing earnings at an average annual rate of 2.6%, while the semiconductor industry saw earnings growing at 20.2% annually.
Revenues have been growing at an average rate of 2.5% per year. FormFactor’s return on equity is 14.2%, and it has net margins of 18.3%.
MKS Instruments: target price $130
Citi has set a price target of $130 for MKS.
According to InvestingPro data, analyst targets range from $119 to $160, with 8 analysts recently revising their earnings expectations upward for the upcoming period.
Citi’s upgrade reflects confidence in MKS Instruments’ diversified product portfolio within the semiconductor end market, particularly in tech and deposition processes.
The company is known for excelling in the semiconductor equipment sector during industry upcycles, driven by its strong position in the growing etch and deposition markets.
MKS Instruments boasts an EBITDA of $871 million and robust liquidity, with current assets exceeding short-term obligations by 3.4x, underscoring its solid financial footing.
Citi notes that the company has already navigated inventory adjustments in the logic and DRAM sectors, though corrections in the NAND market are expected to continue through the first half of 2025.
MKS Instruments also announced the construction of a new semiconductor factory in Malaysia, aiming to diversify manufacturing risk.
The company projected Q4 revenue to be between $910 million and $950 million, with semiconductor revenue expected at $380 million.
Analysts at Citi highlight the potential for MKS to leverage AI-driven advancements in areas such as advanced packaging substrates.
Furthermore, the recent acquisition of Atotech is beginning to yield synergistic wins, contributing to the positive outlook for the company.
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