Several firms out with comments on Formfactor (NASDAQ:FORM) after the co issued weaker than expected results & guidance last night:
- Cowen is clearly the most negative here calling the results a mess saying that in the wake of this poor outlook, FORM will likely retest lows in the morning. As they asserted last quarter, there seems to be little reason to downgrade the stock here, at the bottom. For reference, assuming the stock price goes back to previous lows ($17) the stock would be trading at 1.1x TBV and 1.3x revised forward revs.
FORM is caught in an extremely tough DRAM downturn that should take time to correct. FORM's customers are losing huge $$ and are unable to cover manufacturing costs so it is no surprise to Cowen that they are in cash preservation mode themselves.
In short, while the stock will likely find a bottom and might bounce a bit off these levels in the ST, there is nothing here to get excited about except that the stock is cheap and investors get a call option a LT recovery in FORM. Still if another DRAM recovery is coming there are other leveraged ways to play. Except for longer-term value investors there seems little reason to step into the name in the ST. Maintains Outperform.
- Piper Jaffray is somewhat more neutral noting FORM missed their expectations for Q1 and its guidance missed Q2 consensus. While the company shipped ~2x Harmony cards q/q and regained some prior share losses we believe that weakness in the DRAM industry will continue to weigh on the company's profitability over the next several quarters. Consequently, they do not expect the company to return to profitability until 2H09. However, the firm notes the company has a strong book value of ~$15.36/shr including cash of ~$11.40/shr and as such, they expect the shares to trade at close to 1x BV/shr until visibility improves and the company returns to profitability. Maintain Neutral rating. Tgt goes to $17 from $18.
- Morgan Stanley is the most bullish of the three saying its too early to rule out a 2H08 recovery. Though March quarter results were expected, June guidance was weaker than expected and management’s 2H08-recovery push out comments could be disconcerting for some investors, in their view. However, they think it is too early to rule out 2H08 recovery for three reasons a) poor visibility in FORM ‘s high (~60%) turns business, b) positive 2H08 DRAM supply-demand and pricing outlook by our global memory team, and c) recent sub 70nm transitions highlighted by DRAM makers to reduce costs. We also point out that FORM’s DRAM revenues doubled in ~ 3 quarters off the trough in the previous 2003-DRAM cycle lending credibility to firm's model that a similar rebound is quite possible in the current cycle. Consequently, their longer-term thesis on FORM’s secular growth driven by improving test efficiency and technology in the probe card market is unchanged.
With stock almost cut in half since its peak in September last year, they think the risk-reward
profile is not compelling for a downgrade at the current levels. Maintains Overweight while lowering tgt to $27.50 from $30.
Notablecalls: I think FORM will be a solid bounce candidate in the $16 range. That's around the book value.
- Cowen is clearly the most negative here calling the results a mess saying that in the wake of this poor outlook, FORM will likely retest lows in the morning. As they asserted last quarter, there seems to be little reason to downgrade the stock here, at the bottom. For reference, assuming the stock price goes back to previous lows ($17) the stock would be trading at 1.1x TBV and 1.3x revised forward revs.
FORM is caught in an extremely tough DRAM downturn that should take time to correct. FORM's customers are losing huge $$ and are unable to cover manufacturing costs so it is no surprise to Cowen that they are in cash preservation mode themselves.
In short, while the stock will likely find a bottom and might bounce a bit off these levels in the ST, there is nothing here to get excited about except that the stock is cheap and investors get a call option a LT recovery in FORM. Still if another DRAM recovery is coming there are other leveraged ways to play. Except for longer-term value investors there seems little reason to step into the name in the ST. Maintains Outperform.
- Piper Jaffray is somewhat more neutral noting FORM missed their expectations for Q1 and its guidance missed Q2 consensus. While the company shipped ~2x Harmony cards q/q and regained some prior share losses we believe that weakness in the DRAM industry will continue to weigh on the company's profitability over the next several quarters. Consequently, they do not expect the company to return to profitability until 2H09. However, the firm notes the company has a strong book value of ~$15.36/shr including cash of ~$11.40/shr and as such, they expect the shares to trade at close to 1x BV/shr until visibility improves and the company returns to profitability. Maintain Neutral rating. Tgt goes to $17 from $18.
- Morgan Stanley is the most bullish of the three saying its too early to rule out a 2H08 recovery. Though March quarter results were expected, June guidance was weaker than expected and management’s 2H08-recovery push out comments could be disconcerting for some investors, in their view. However, they think it is too early to rule out 2H08 recovery for three reasons a) poor visibility in FORM ‘s high (~60%) turns business, b) positive 2H08 DRAM supply-demand and pricing outlook by our global memory team, and c) recent sub 70nm transitions highlighted by DRAM makers to reduce costs. We also point out that FORM’s DRAM revenues doubled in ~ 3 quarters off the trough in the previous 2003-DRAM cycle lending credibility to firm's model that a similar rebound is quite possible in the current cycle. Consequently, their longer-term thesis on FORM’s secular growth driven by improving test efficiency and technology in the probe card market is unchanged.
With stock almost cut in half since its peak in September last year, they think the risk-reward
profile is not compelling for a downgrade at the current levels. Maintains Overweight while lowering tgt to $27.50 from $30.
Notablecalls: I think FORM will be a solid bounce candidate in the $16 range. That's around the book value.
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