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Recent Pullback In Ichor (ICHR) Presents Buying Opportunity: Stock To Watch


We urge investors to take advantage of the weakness in shares of Ichor Holdings, Ltd. (ICHR), because we believe the company's 2017 acquisitions bode well for the stock. ICHR is more than 30% off its recent 52-week, intra-day high, and this pullback in the absence of any sharp change in fundamentals, positions the stock for at least 20% potential upside from current levels.

Ichor supplies gas panel delivery systems and chemical delivery subsystems for the semiconductor capital equipment industry. The semiconductor supply chain depends on critical subsystems, which is Ichor's domain of expertise.

New semiconductor processes, like Multiple Patterning, FinFET, 3D NAND and Advanced packaging require more fluid delivery. Ichor says its platforms are critical to etch, Chemical Mechanical Planarization (CMP) and deposition steps that support these technology inflections.

The semiconductor-equipment maker has been pursuing strategic and accretive acquisition opportunities, adding Cal-Weld and Talon Innovations to its arsenal this year. The acquisitions contribute a combined 250 plus basis points to gross margin and more than 65 cents to annual earnings per share. Both acquisitions are expected to favorably impact Ichor's market share.

Cal-Weld specializes in metal component manufacturing, a strategic business for Ichor, and is expected to add $65 million to $80 million of revenue and $0.29 to $0.39 of non GAAP adjusted EPS in fiscal 2018. On an annual basis based on current industry activity levels, Talon Innovations is expected to generate between $70 million and $90 million of revenue and $0.40 to $.50 of non-GAAP adjusted EPS.

A scalable and capital efficient business model has helped Ichor scale operations to triple quarterly sales in the last three years, while keeping capex to around 1% of revenue. Earlier this month, the company said revenue outpaces year-over-year shipments by key customers, a testimony to expanding share at Top-Tier Semicap clientele. Ichor also said its revenue growth is outpacing industry growth in 2017, while net income growth is better than even revenue growth. (Wafer Fab Equipment (WFE) market growth of 25% to 30% vs. Ichor's 61% revenue growth vs. 100% net income growth.)

ICHR is a stock to watch in the coming months. The stock closed trade at $23.83 on Thursday.

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