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Why Is Advanced Energy (AEIS) Up 20.1% Since Last Earnings Report?

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A month has gone by since the last earnings report for Advanced Energy Industries (AEIS - Free Report) . Shares have added about 20.1% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Advanced Energy due for a pullback? 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.

Advanced Energy Beats on Q3 Earnings & Revenues

Advanced Energy Industries reported third-quarter 2020 non-GAAP earnings of $1.66 per share, beating the Zacks Consensus Estimate by 41.9%. Further, the bottom line was higher than management’s guided range of 9 cents to $1.40 per share.

The bottom line also improved significantly from 54 cents per share in the year-ago quarter. Additionally, the figure surged 40.7% sequentially.

Revenues of $389.5 million surpassed the Zacks Consensus Estimate of $352 million and came within management’s guided range of $325-$375 million. Moreover, the top line soared 122.4% from the year-ago quarter and 14.6% from the prior quarter.

The year-over-year improvement in the top line can be attributed to favourable demand conditions. Plus, a strong momentum across semiconductor equipment, data center, telecom and networking, and industrial and medical contributed to the outperformance. Additionally, a positive contribution from Artesyn Embedded Power buyout was a catalyst. Further, a solid performance delivered by the company across North America and Asia was a major upside.

However, coronavirus-induced supply-chain constraints remained concerns.

Nevertheless, the company is optimistic about its power supplies for medical applications. Further, prospects related to 5G remain key levers. Additionally, the strengthening momentum across data center market is a tailwind.

Top Line in Detail

Product revenues soared 141.8% year over year to $358.3 million (92% of total revenues) in the third quarter. Services revenues improved15.8% from the prior-year quarter to $31.3 million (8% of revenues).

Product Line in Detail

Semiconductor Equipment revenues jumped 73.2% year over year to $167.1 million (43% of total revenues). The company witnessed heavy investments in foundry/logic, which acted as a boon. Also, hefty NAND memory investments contributed significantlyto the results. This apart, a solid momentum across semiconductor products and services substantially aided the performance.

Industrial & Medical revenues rose 57.7% year over year to $87 million (22.3% of revenues).

Telecom & Networking revenues were $47.7 million (12.2% of revenues), up from $10.02 million in the prior-year quarter.

Data CenterComputing revenues were $87.7 million (22.5% of revenues), up from $13.5 million in the year-ago quarter. Climbing hyperscale revenues and a strong momentum across Enterprise OEM owing to solid demand from prior design wins benefited the company.

Operating Results

In the third quarter, non-GAAP gross profit was 39.8%, which contracted 380 basis points (bps) from the year-ago quarter.

Non-GAAP operating expenses were $78.9 million, up 47.6% year over year. As a percentage of revenues, the figure contracted significantly from 30.5% in the year-ago quarter to 20.3% in the reported quarter.

Further, non-GAAP operating margin was 19.5%, expanding 640 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Sep 30, 2020, cash, cash equivalents and marketable securities were $431.6 million compared with $383.4million as of Jun 30, 2020. Long-term debt stood at $308.8 million at the end of the third quarter, down from $313.04million at the end of the second quarter.

During the third quarter, cash flow from operations was $67.5 million compared with $38.6 million in the second quarter. Capital expenditure during the reported quarter was $11.8 million, up from $7.3 million in the prior quarter.

Q420 Guidance

For fourth-quarter 2020, Advanced Energy expects non-GAAP earnings between $1.10 and $1.50 per share.

Further, the company anticipates revenues in the range of $340-$380 million.

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month. The consensus estimate has shifted 23.85% due to these changes.

VGM Scores

Currently, Advanced Energy has a strong Growth Score of A, though it is lagging a bit on the Momentum Score front with a B. However, 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 B. 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 Advanced Energy has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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