Ultra Clean Holdings (UCTT - Free Report) is a Zacks Rank #1 (Strong Buy) and it saw plenty of strength last week. The market was grinding higher, not in leaps and bounds but small moves up and some even smaller moves down. What stood out to me was the big number of stocks that were hitting new highs throughout the week. This tells me that a part of the market is steadily moving higher with the broader market is clawing for even small gains.
UCTT was one of the stocks that made new highs last week and I want to dive deeper into the story to see if the stock is likely to continue to show us strength.
Ultra Clean Holdings is a developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries. Ultra Clean offers its customers an integrated outsourced solution for gas delivery systems and other subassemblies, improved design-to-delivery cycle times, component neutral design and manufacturing and component testing capabilities. Ultra Clean's customers are primarily original equipment manufacturers for the semiconductor capital equipment, flat panel, solar and medical device industries. Ultra Clean is headquartered in Menlo Park, California.
As I look at the last four quarters for UCTT, I see a positive picture. Three of the last four reports have topped the Zacks Consensus Estimate and not by a little. When the lone miss (a negative earnings suprise of 8%) is factored in, the average for the last four reports is still a positive 25%.
That means the three beats were all pretty big in size. I see positive earnings surprises of 31%, 16% and 61% respectively. That is what investors like to see.
Earnings Estimate Revisions
The Zacks Rank is an algo that looks for the best moves in earnings estimates. The consensus estimates for UCTT is doing just what investors want to see, its moving higher.
I see small increases for this quarter, next quarter, this year and next year.
The Zacks Rank cares the most about the full year number and for 2019 that number has moved from $0.77 to $0.87 over the last 30 days.
The 2020 number has moved from $1.09 to $1.29.
These are big moves... and investors that believe that fundamentals matter know that higher EPS results lead to higher stock prices.
Last quarter topline growth was only 8%, but that number is expected to increase as demand for UCTT services increases. The stock trades at 26x forward earnings estimates and has a price to book mulitple of 2x. Those are pretty low numbers for the chip industry.
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