On Monday, Advanced Energy Industries (NASDAQ:AEIS) experienced a change in stock rating, as it was downgraded from Buy to Neutral by a Citi analyst. The price target for the company's stock remains set at $113.00.
The firm's decision to adjust the rating reflects a strategic shift in their approach to the semiconductor Original Equipment Manufacturers (OEMs) and components space. The analyst noted that the sector appears to be entering the latter stages of its growth phase, prompting a more selective stance on investments.
The downgrade aligns with Citi's perspective that while Advanced Energy Industries is likely to see gross margin expansion and benefit from new product launches in 2025, such as eVoS and eVerest for semiconductor equipment, and NeoPower for industrial and medical applications, its non-semiconductor exposure could cause it to lag behind in the anticipated sector rally.
The analyst remains positive on the company's future prospects but suggests that the current stock price already reflects its value accurately, leaving limited room for further appreciation.
The company's valuation, according to the analyst, trades at a 30% and 10% premium compared to its three-year average and its peer MKSI, respectively. This assessment is based on the stock trading closer to its prior peak.
Moreover, it was pointed out that pure play semiconductor component stocks like VAT command higher premiums than both AEIS and MKSI, indicating a discrepancy in market valuation.
Advanced Energy Industries' stock is now considered to be fairly valued by Citi, with the analyst indicating that it is priced at approximately 18 times the projected earnings per share (EPS) for 2025. The firm's neutral stance is a result of a comprehensive analysis of the company's market position, growth prospects, and current stock performance relative to its peers.
"In other recent news, Advanced Energy Industries announced the acquisition of Airity Technologies, a firm specializing in high voltage power conversion technologies. This acquisition is expected to enhance Advanced Energy's offerings in the semiconductor, industrial, and medical markets.
Furthermore, Advanced Energy has seen an analyst upgrade from Citi, which raised the company's stock target from $107 to $113, influenced by the company's sales and EPS figures for the March quarter.
Advanced Energy also revealed its first-quarter earnings for 2024, meeting its gross margin target and anticipating a stronger performance in upcoming quarters, driven by growth in various sectors including data center computing, semiconductor, industrial, and medical.
In another development, Tower Semiconductor (NASDAQ:TSEM) Ltd. has scheduled its Annual General Meeting of Shareholders on July 31, 2024. The semiconductor manufacturer disclosed that the meeting's agenda and proxy materials would be distributed to shareholders around June 25, 2023.
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