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Bull of the Day: Amkor Technology (AMKR)

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Technology is amazing, complicated, and at times requires several different components to function in tandem to produce the desired effect.   Take your smart phone, there are many technologies that work together to enable these phones to do amazing things; batteries, semiconductor chips, and touch screens to name a few of the parts.  One such company that does chip packaging and testing for large companies is Amkor Technologies (AMKR - Free Report) , and they are the Zacks Bull of the Day.   

This Zacks Ranked #1 (Strong Buy) company is the world's largest independent provider of semiconductor packaging and test services. Also, the company is one of the leading developers of advanced semiconductor packaging and test technology. The company offers one of the industry's broadest integrated sets of packaging and test services, which are the final procedures necessary to prepare semiconductor devices for further use. Its customers outsource the packaging and testing of semiconductor chips to the company in order to benefit from the expertise in the development and implementation.

Recent Earnings

Management recently announced Q2 16 earnings where they easily beat both the Zacks Consensus Earnings and Revenue estimates.  The company posted year over year gains in Net sales +24.4%, and EBITDA +5%.  AMKR also faced $13 million in recovery costs from earthquakes in Japan (factory in Kumamoto).  According to Joanne Solomon, EVP and CFO, “We incurred approximately $13 million of incremental earthquake costs that reduced gross margin by 150 basis points and earnings per diluted share by $0.04. Taking into account insurance payments anticipated later this year, we expect the net impact of the Japan earthquakes on our full year 2016 results to be minimal."

Management’s Take

According to Steve Kelley, President and CEO, “Second quarter results were above the high end of our guidance. Strong Android smartphone demand and a quicker recovery at our earthquake-damaged Kumamoto factory were the key drivers of our financial performance for the quarter. Our growth in sequential sales also drove an 8.1% improvement in EBITDA.”

Mr. Kelley, touched on Q3 expectations as well, stating, “Looking ahead to Q3, we expect that revenues will increase around 15% sequentially, driven by the launch of mobile devices across multiple tiers. We expect robust growth in advanced SiP, Greater China and automotive.”

Price Performance Graph

As you can see in the graph below, AMKR has been outperforming the S&P 500 for the past year.  Specifically, the last 30 days, it has been destroying the popular index.

Increasing Estimates

Over the past 7 days, estimates for Q3 16, Q4 16, FY 16 and FY 17 have all seen significant upgrades; Q3 16 jumped up from $0.07 to $0.20, Q4 16 rose from $0.15 to $0.23, FY 16 rocketed up from $0.14 to $0.44, and FY 17 improved from $0.50 to $0.62.

Bottom Line

For the third quarter 2016 management is expecting Net sales to improve between +10-19% from Q2 16 (range of $1.01-$1.09 billion), Gross Margins to range between +16-20% (above the +14.3% posted in Q2 16), and Net Income to range between $29 million to $65 million (above the $5 million in Q2 16). 

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