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Bull of the Day: Ultra Clean Holdings (UCTT)

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Ultra Clean Holdings (UCTT - Free Report) is a Zacks #1 (Strong Buy) that is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. The company customers are mostly manufacturers in the semiconductor equipment space, which gives the investors in UCTT exposure to tech.

About the Company

Ultra Clean was founded in 1991 and has almost 4,000 full time employees. It is headquartered in California, in the Silicon Valley region.

The company has a market cap of about $800 million and has Zacks Style Scores of “A” in Value and “B” in growth. The Forward PE is just over 8, making the stock a value candidate.

Q4 Earnings

Ultra Clean reported Q2 EPS in late July, posting a 66% EPS surprise to the upside. Revenues were up to $344.8M v the $265M in the prior year. The company also guided Q3 EPS higher, now seeing a range of $0.56-0.72 v the $0.23 expected. Revenues look to improve and were guided higher to $320-360M v the $278 expected.

The beat was the sixth straight and the biggest surprise beat the company has ever seen. The quarter was well received, with the stock jumping over 20% after earnings were released.

Estimates

Analysts have been hiking their numbers since the company reported and gave guidance. Over the last 60 days, estimates have jumped 333% for next quarter, from $0.12 to $0.52. For the current year, estimates have gone higher by 67% over the same time frame.

A couple upgrades of note since earnings. First coming from Stifel, who rates UCTT as a hold, but raised their price target to $26 from $23.

Needham has the stock at a Buy, and after earnings raised their targets to $35 from $26.

Is it time to buy after the big sell off?

The stock gapped higher after earnings, printing a 2020 high of $31.10. The stock is down over 35% since those tops, falling after the gap was filled and moving averages were broken. Recent issues with Intel could be hurting the stock with news of delays in manufacturing. Investors have a right to be nervous, but considering the valuation and recent earnings, the sell-off looks to be overdone.

Technicals

Earnings caused a massive spike higher, but since the gap was filled the stock has been bleeding lower. The stock has now fallen into a 61.8% retracement level drawn from March lows to recent highs. This could be a big area for the bulls to step in, so investors should watch for a reaction around the $19.50 area.

If that area holds, the bulls would need to take back the 200-day MA at $21.75. Another area of resistance on a bull run would $25, with longer term traders targeting $35.

Bottom Line

The sell off is overdone and investors looking to buy should confirm support in the $19.50 area. While there might be fundamental issues coming from Intel, the company has long-term growth prospects at great value.

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