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FormFactor (FORM) Down 12.1% Since Last Earnings Report: Can It Rebound?

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It has been about a month since the last earnings report for FormFactor (FORM - Free Report) . Shares have lost about 12.1% in that time frame, underperforming the S&P 500.

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

FormFactor Tops Q2 Earnings Estimates, Lags Revenues

FormFactor Inc. reported second-quarter adjusted earnings of 33 cents per share, which beat the Zacks Consensus Estimate of 27 cents. The figure remained flat sequentially but increased 57.1% year over year.

Revenues increased 14.4% from the year-ago quarter but decreased 1.8% sequentially to $157.8 million.

The top line was driven by strong demand for both Foundry & Logic probe cards. Customer node transitions and new design releases also aided revenues.

However, the top line missed the Zacks Consensus Estimate by 0.7%.

Management continues to expect strong demand for Foundry & Logic probe cards in the near term due to acceleration of 5G handset pilot production and persistent spending on work from home infrastructure.

Notably, management expects strength in DRAM in the near term as key customers begin to ramp new server and mobile designs on the one-Y and one-Z nanometer nodes.

During the quarter, the company completed the acquisition of the probe card assets of Advantest Corporation. The deal will enable FormFactor to enhance its position in the probe card market.

Quarter Details

Probe card segment revenues were $134 million for the second quarter, down less than 1% from the first quarter.

Within the probe card segment, Foundry & Logic sales (accounting for 69% of its total revenues) increased 3% on a sequential basis to $109 million.

Revenues for DRAM products (12% of revenues) were $19 million, reflecting a decrease of $6 million from the first quarter.

Flash revenues (3.4% of revenues) were $5.4 million, up on a sequential basis.

Systems revenues for the second quarter were $24 million, down approximately 8% sequentially. The decrease was mainly due to lower sales to universities and institutions that were impacted by the COVID-19 pandemic.

Operating Details

On a non-GAAP basis, gross margin expanded 150 basis points (bps) year over year but contracted 30 bps sequentially to 45.8%. The sequential decrease was mainly due to lower gross margin in the Systems segment.

Non-GAAP operating expenses were $41.1 million for the second quarter, up from $39.6 million in the prior-year period. The increase was due to higher R&D investments.

Balance Sheet & Cash Flow

At second quarter-end, cash and cash equivalents, as well as marketable securities were $261.1 million compared with $239.4 million in the first quarter.

Cash flow from operations was $43.1 million versus $39.3 million in the first quarter. Free cash flow was $18.6 million, down from $27.6 million in the first quarter.

Guidance

FormFactor expects third-quarter 2020 revenues between $170 million and $182 million.

On a non-GAAP basis, the company projects gross margin within 44-47% and earnings in the band of 30-38 cents per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in estimates revision. The consensus estimate has shifted 19.61% due to these changes.

VGM Scores

At this time, FormFactor has a nice Growth Score of B, though it is lagging a lot on the Momentum Score front with a D. Following the exact same course, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

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

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise FormFactor has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.


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