On Thursday, B.Riley maintained a Buy rating on FormFactor (NASDAQ:FORM) with a steady price target of $64.00. The firm's analysis followed FormFactor's third-quarter earnings, which surpassed expectations in terms of sales and earnings per share (EPS). Despite a solid performance, the company's stock was indicated to open 3-4% lower after the market closed on Wednesday, contrasting with a year-to-date gain of 5%.
FormFactor reported robust third-quarter results, with all main segments showing growth and exceeding forecasts. The company's high-bandwidth memory (HBM) sales are expected to remain strong in the fourth quarter, even as DDR5 continues to perform well.
Additionally, positive developments include FormFactor's alignment with Intel (NASDAQ:INTC)'s consistent demand and its positioning for the upcoming Apple (NASDAQ:AAPL) APU cycle with TSMC, set to begin in the first quarter of 2025.
However, the company's fourth-quarter sales and EPS guidance were slightly below expectations. B.Riley pointed out that gross margin pressures are primarily related to product mix but anticipates that the momentum in HBM sales will help sustain the company through these challenges in the 2025 fiscal year. The firm also expects that FormFactor's expansion in the Foundry/Logic segment will gradually improve gross margins.
Operationally, FormFactor is seen to be managing expenses well and generating strong cash flow. The company is also back on a growth trajectory in its Systems segment. B.Riley's updated estimates for FormFactor's EPS from 2024 through 2026 are adjusted 4%-7% lower or higher, reflecting a nuanced view of the company's financial prospects.
Concluding their commentary, B.Riley expressed continued confidence in FormFactor's operational execution and its ability to meet long-term financial targets. The firm believes that FormFactor's revenues and earnings potential remain strong in the near term and maintains a $64 price target, suggesting a significant 12-month upside for the stock.
In other recent news, FormFactor's Q2 2024 earnings and revenue results exceeded expectations, largely driven by growth in the probe card segment, particularly in the DRAM market. This led to record revenue levels, with a 17% sequential increase and a 26.7% year-over-year growth. The company's non-GAAP gross margin reached 45.3%, surpassing the target financial model.
TD Cowen maintained a hold rating on FormFactor, while increasing the price target to $60, following the company's strong Q2 performance. The firm highlighted FormFactor's advantageous position due to the growing need for probe cards in semiconductor manufacturing, yet suggested investors might seek a more opportune moment to invest in the stock.
FormFactor's diversified product portfolio and strategic positioning in advanced packaging technologies set the stage for continued positive performance. The firm's outlook for Q3 remains optimistic, with an expected revenue of around $200 million and a non-GAAP gross margin of approximately 43%.
These developments reflect the company's solid standing in the market and positive financial prospects.
InvestingPro Insights
FormFactor's financial health and market performance align with B.Riley's optimistic outlook. According to InvestingPro data, the company's revenue growth has been robust, with a 26.65% increase in the most recent quarter. This growth supports B.Riley's observation of strong performance across all main segments.
InvestingPro Tips highlight FormFactor's solid financial position. The company "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations," indicating a strong financial foundation that could help navigate any short-term challenges mentioned in the article, such as gross margin pressures.
The company's profitability is also noteworthy, with InvestingPro data showing a gross profit margin of 40.76% and an EBITDA growth of 59.34% over the last twelve months. These figures underscore FormFactor's operational efficiency and support B.Riley's confidence in the company's execution capabilities.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips that could provide deeper insights into FormFactor's investment potential.
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