On Tuesday, Shimmick Corp (NASDAQ:SHIM) faced a downgrade from Buy to Hold by a Craig-Hallum analyst. The construction company's first quarter results fell short of expectations, prompting the shift. Shimmick experienced a slower start in new projects and dealt with cost overruns and increased legal fees. These issues have led to an anticipation of 2024 margin guidance at the lower end.
The company's backlog of projects decreased in comparison to the previous quarter with a book-to-bill ratio of 0.6x on Shimmick projects. The analyst expressed a cautious optimism for a potential increase in activity during the second half of the year.
Still, due to the first quarter's performance, Shimmick also breached a covenant on its revolving credit facility and is currently negotiating a waiver. Furthermore, the filing of its 10-Q report has been delayed.
To address its balance sheet concerns, Shimmick is expecting to complete $40 million in non-core asset sales during the second quarter. The analyst acknowledged the positive outlook for the water infrastructure sector and supported Shimmick’s strategic pivot towards smaller, mid-sized water-focused projects, which are perceived as less risky compared to larger-scale ventures.
Despite these strategic moves, the firm has adopted a wait-and-see approach before considering re-entry into the stock. The analyst noted the need for improved execution, results, backlog, and valuation, with Shimmick's valuation currently standing at 11 times EBITDA.
The downgrade reflects a more conservative stance until the company demonstrates tangible signs of improvement in its operations and financial health.
InvestingPro Insights
Shimmick Corp's (NASDAQ:SHIM) recent downgrade by a Craig-Hallum analyst is further substantiated by some concerning metrics and insights from InvestingPro. With a current market capitalization of $93.49 million and a negative P/E ratio reflecting its unprofitability, Shimmick's financial health appears precarious.
The company has experienced a significant revenue decline of 13.04% over the last twelve months as of Q1 2024, with gross profit margins suffering at a mere 0.05%. This is consistent with the analyst's concerns regarding Shimmick's margin guidance.
InvestingPro Tips highlight that Shimmick is trading at a low revenue valuation multiple and analysts do not anticipate the company will be profitable this year. These insights align with the analyst's cautious view and the need for Shimmick to demonstrate improved financial results.
Moreover, the stock's price volatility and a substantial price drop of over 40% in the last three months may deter investors seeking stability. Shimmick's strategic focus on mid-sized water projects could be a step in the right direction, but with short-term obligations exceeding liquid assets, the company's financial maneuverability is limited.
For readers looking to delve deeper into Shimmick's financials and future prospects, InvestingPro offers further detailed analysis and metrics. Utilize coupon code PRONEWS24 to get an additional 10% off a yearly or biyearly Pro and Pro+ subscription and gain access to over 13 additional InvestingPro Tips that could inform your investment decisions regarding Shimmick Corp. Visit https://www.investing.com/pro/SHIM for a comprehensive financial analysis of Shimmick Corp.
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