A month has gone by since the last earnings report for Advanced Energy Industries (AEIS - Free Report) . Shares have lost about 4.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Advanced Energy 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 catalysts.
Advanced Energy Beats on Q2 Earnings & Revenues
Advanced Energy Industries reported second-quarter 2020 non-GAAP earnings of $1.18 per share, beating the Zacks Consensus Estimate by 43.9%. Further, the figure was higher than management’s guided range of 50 cents to $1.10 per share.
The bottom line also improved 162.2% on a year-over-year basis and 29.7% sequentially.
Revenues of $339.9 million surpassed the Zacks Consensus Estimate of $314 million and came within management’s guided range of $285-$345 million. Notably, the top line soared 152.1% from the year-ago quarter and 7.7% from the prior quarter.
The year-over-year improvement in the top line can be attributed to growing demand across major end markets.
Moreover, strong momentum across semiconductor equipment, data center and, industrial and medical contributed to the performance. Additionally, positive contribution from Artesyn Embedded Power buyout was a catalyst.
Further, the company delivered strong performance in North America and Asia regions during the reported quarter, which remained a major positive.
However, coronavirus-induced supply chain constraints remained concerns. Macro headwinds related to COVID-19 continued to hurt the company’s performance in the industrial market.
Nevertheless, the company remains optimistic regarding its power supplies for medical applications. Further, growth prospects related to 5G remain positives. Additionally, the strengthening momentum across data center market is a tailwind.
All these factors are likely to help the stock rebound in the near term.
Top Line in Detail
Product revenues soared 193.6% year over year to $311.8 million (91.7% of total revenues) in the second quarter.
Services revenues declined 1.8% from the prior-year quarter to $28.1 million (8.3% of revenues). This was primarily due to sluggish semiconductor service business.
Product Line in Detail
Semiconductor Equipment revenues improved 61.5% year over year to $145.4 million (42.8% of total revenues). The company witnessed growing investments in foundry/logic, which acted as a tailwind. Also, strong NAND memory investments contributed significantly to the results. Moreover, year-over-year growth of 88% in the semiconductor product revenues remained positive.
However, COVID-19 induced capacity constraints in the company’s service centres weighed on semiconductor service revenues.
Industrial & Medical revenues improved 58.4% year over year to $70.9 million (20.9% of revenues). This can be attributed to increasing demand for critical care medical devices. Further, growthin thin film market was a tailwind.
Telecom & Networking revenues were $40.2 million (11.8% of revenues). Increasing shipment of design wins contributed substantially to the performance. However, sluggish global telecom infrastructure investment owing to COVID-19 remained a concern.
Data CenterComputing revenues were $83.3 million (24.5% of revenues). Strengthening momentum across hyperscale customers benefited the company.
In second quarter, non-GAAP gross profit was 38.7%, which contracted 900 basis points (bps) from the year-ago quarter.
Non-GAAP operating expenses were $77.8 million, up 65.5% year over year. As a percentage of revenues, the figure contracted significantly from 34.9% in the year-ago quarter to 22.9% in the reported quarter.
Further, non-GAAP operating margin was 15.8%, expanding 300 bps from the prior-year quarter.
Balance Sheet & Cash Flow
As of Jun 30, 2019, cash, cash equivalents and Marketable securities were $383.4 million compared with $355.03million as of Mar 31, 2019.
Long-term debt stood at $313.04 million at the end of second quarter, down from $317.3 million at the end of first quarter.
During the second quarter, cash flow from operations was $38.6 million compared with $28.5 million in the first quarter.
Capital expenditure during the reported quarter was $7.3 million, down from $6.1 million in the prior quarter.
For third-quarter 2020, Advanced Energy expects non-GAAP earnings between 9 cents and $1.40 per share.
Further, the company anticipates revenues in the range of $325-$375 million.
The company expects strong momentum across semiconductor equipment market. Further, it anticipates improvements in the industrial market.
Further, the company anticipates volatility in demand in data center computing, and telecom and networking markets.
How Have Estimates Been Moving Since Then?
It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 66.02% due to these changes.
At this time, Advanced Energy has a subpar Growth Score of D, however its Momentum Score is doing a lot better with an A. However, the stock was allocated a grade of F on the value side, putting it in the bottom 20% quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of D. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Advanced Energy has a Zacks Rank #1 (Strong Buy). We expect an above average return from the stock in the next few months.