It has been about a month since the last earnings report for Advanced Energy Industries (AEIS Quick QuoteAEIS - Free Report) . Shares have added about 11.5% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Advanced Energy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Advanced Energy Beats on Q1 Earnings & Revenues

Advanced Energy Industries reported first-quarter 2021 non-GAAP earnings of $1.29 per share, beating the Zacks Consensus Estimate by 1.57%.

Further, the bottom line improved 41.8% from the year-ago quarter but decreased 13.4% from the prior quarter on lower revenue base. The bottom line was within management’s guidance of $1.10 to $1.40 per share.

Revenues of $351.6 million surpassed the Zacks Consensus Estimate by 0.42% and were within management’s guidance of $335-$365 million. Moreover, the top line improved 11.5% from the year-ago quarter, However, the figure decreased 5.2% from the prior quarter.

The year-over-year improvement in the top line can be attributed to favorable demand conditions. Further, a strong momentum across semiconductor equipment, and strength in process power delivery systems contributed to the results.

However, the coronavirus-induced supply-chain constraints acted as headwinds.

Nevertheless, the company is optimistic about its strengthening order traction across hyperscale customers. Further, prospects related to 5G remain key levers.

Additionally, positive contribution from Artesyn Embedded Power buyout remains a major positive.

End-Market in Details

Semiconductor Equipment revenues grew 35.2% year over year and 9% sequentially to $180.7 million (51.4% of total revenues) led by robust demand for process power delivery systems and growing clout of MAXstream RPS system. Apart from this, strong shipment of eVoS evaluation units was a positive. Further, rising RF design wins remained a tailwind.

Industrial & Medical revenues grew 26.5% year over year to $78.4 million but decreased 16.4% from the prior quarter (22.3% of revenues). In medical vertical, recovery in the demand for diagnostic and life science applications led to year-over-year growth. In Industrial domain, strength in flat panel display, battery production, carbon fiber manufacturing, and horticulture was a positive.

In the first quarter, the company’s Ascent MS platform secured design wins across various solar cell manufacturing applications. Also, Thyro-A+ power controller has been implemented into a flat panel manufacturing application.

Data Center Computing revenues were $59.2 million (16.8% of revenues), down 31.4% from the year-ago quarter and 9.4% from the prior quarter. This was due to weak demand environment, on account of ongoing inventory digestion among hyperscale customers.

Nevertheless, the company is seeing higher demand in the second quarter, on the heels of a strong uptick in demand in the second half of the year.

In the first quarter, the company clinched a deal win for its board-mounted 48 volt DC-to-DC design. The company continues to focus on such alluring 48 volt server opportunities.

Telecom & Networking revenues were $33.3 million (9.5% of revenues), down 1% from the prior-year quarter and 27.8% from the prior quarter. Nevertheless, strong investments in 5G infrastructure hold promise. In the reported quarter, the company secured two critical 5G design slots at a leading telecom OEM.

The company is focusing on targeting higher-end applications to boost revenues from the end-market.

Operating Results

In the first quarter, non-GAAP gross profit margin was 39.7%, which expanded 190 basis points (bps) from the year-ago quarter.

Non-GAAP operating expenses were $79.5 million, up 6.4% year over year. As a percentage of revenues, the figure contracted 110 bps from the year-ago quarter to 22.6% in the reported quarter.

Further, non-GAAP operating margin was 17.1%, expanding 300 bps from the prior-year quarter. This can be attributed to gross margin expansion and lower operating expenses.

Balance Sheet & Cash Flow

As of Mar 31, 2021, cash, cash equivalents and marketable securities were $512.8 million compared with $483 million as of Dec 31, 2020.

Total debt stood at $317.8 million at the end of the first quarter, down from $322 million at the end of fourth-quarter 2020.

During the first quarter, cash flow from operations was $54.3 million compared with $67.1 million in fourth-quarter 2020.

Guidance

For second-quarter 2021, Advanced Energy expects non-GAAP earnings to be $1.25 per share (+/- 15 cents).

Further, the company anticipates revenues to be $360 million (+/- $15 million).

The company had record backlog of $406 million entering into the second quarter.

How Have Estimates Been Moving Since Then?

It turns out, fresh estimates have trended downward during the past month. The consensus estimate has shifted -13.19% due to these changes.

VGM Scores

At this time, Advanced Energy has a strong Growth Score of A, though it is lagging a lot on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the second quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. It's no surprise Advanced Energy has a Zacks Rank #4 (Sell). We expect a below average return from the stock in the next few months.