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Bear of the Day: Ichor Holdings, Ltd. (ICHR)

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Ichor Holdings, Ltd. (ICHR - Free Report) posted a strong comeback in the first half of 2019, which saw it crush the overall semiconductor market’s climb. With that said, the company’s outlook for the rest of the year looks pretty brutal, after a rough first quarter of 2019, amid a broader chip industry downturn.

Quick Overview

Ichor designs, engineers, and manufactures critical fluid delivery subsystems and components for semiconductor capital equipment. The Fremont, California-based company’s offerings include gas and chemical delivery subsystems, which are vital parts of the process tools used to make semiconductor devices.

The semiconductor industry got a boost recently on the back of positive trade war-related news following the G-20 summit. The likes of Micron (MU - Free Report) , Qualcomm (QCOM - Free Report) , and Intel (INTC - Free Report) have all reportedly resumed shipments of products to Huawei. Still, uncertainty is likely to remain in the historically cyclical chip market even though President Trump lifted part of the ban on the Chinese telecommunication powerhouse.

The fluid delivery subsystems firm saw its first quarter fiscal 2019 revenue plummet from $258 million in the year-ago period to $137.8, as part of a massive industry downturn. Meanwhile, its adjusted Q1 earnings slipped from $1.03 to $0.25 per share to fall just short of our quarterly estimate. Company executives were pleased with Q1 results, especially compared to larger industry declines in wafer fab equipment spending. Ichor expects similar revenue levels in the second quarter, with the top-line expected to come in stronger in the second half of the year.

Price Movement

Before we take a look ahead, it’s helpful to see how ICHR has performed. ICHR stock is up over 120% since going public in late 2016. As we mentioned, ICHR stock has soared over 40% in 2019, to outpace its industry’s 16% climb. But Ichor shares have underperformed the overall semiconductor market over the last two years, and slipped 6.19% during regular trading hours Monday to close at $22.88 a share.

 

 

 

Outlook & Earnings Trends

Moving on, our current Zacks Consensus Estimate calls for the company’s second quarter 2019 revenue to fall 44.6% to $137.87 million. Ichor’s Q3 revenue is projected to fall by just 11% to help the firm’s full-year fiscal 2019 revenue sink 27% to $604.2 million. The semiconductor industry is expected to bounce back in 2020 and Ichor’s revenue is expected to climb 26% above our 2019 estimate to reach $762.7 million, which would still come in far below 2018’s $824 million in revenues.

Meanwhile, the company’s adjusted second-quarter earnings are projected to plummet over 76% to $0.24 per share. Similar to the top line, ICHR’s slowdown is expected to be far less severe in the third quarter, with earnings expected to slip 32.7%.

Overall, the company’s fiscal 2019 EPS figure is projected to fall 55%. Peeking further ahead, Ichor’s bottom-line is projected to soar well above our 2019 estimate in 2020. Still, we can see just how much the company’s earnings estimates have fallen, especially for fiscal 2019 and 2020, over the past 90 days.

 

 

 

 

Bottom Line

Ichor is currently a Zacks Rank #5 (Strong Sell) based, in large part, on its negative earnings estimate revision activity. ICHR also rocks “D” grades across the board for Value, Growth, and Momentum in our Style Scores system, which means it might be a stock to avoid at the moment.

Investors still interested in the semiconductor industry might instead turn to MagnaChip Semiconductor Corporation (MX - Free Report) , Amtech Systems (ASYS - Free Report) , Applied Materials (AMAT - Free Report) , Diodes Incorporated (DIOD - Free Report) , or Infineon Technologies AG (IFNNY - Free Report) , which are all Zacks Rank #1 (Strong Buy) or #2 (Buy)-ranked stocks at the moment.

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