Kulicke & Soffa Industries, Inc. (KLIC) posted stronger than expected quarterly results with the semiconductor equipment maker saying it is seeing increased demand from companies looking to boost their own efficiencies and cut packaging costs. K&S also gave a third quarter revenue forecast far above analyst expectations.
Kulicke and Soffa Industries designs, manufactures and sells capital equipment and expendable tools used to assemble semiconductor devices, including integrated circuits, high and low powered discrete devices, light-emitting diodes, and power modules. The company also services, maintains, repairs and upgrades its equipment. Its customers primarily consist of semiconductor device manufacturers and auto motive electronic suppliers. K&S operates in two main business segments: equipment and expendable tools. K&S manufactures and sells a line of ball bonders, heavy wire wedge bonders, stud bumpers, and die bonders. The company manufactures and sells a variety of expendable tools for a range of semiconductor packaging applications.
For its second quarter of fiscal 2011, the company reported net revenue of $206.7 million and net income of $39.9 million, or $0.54 per diluted share. In the year-ago quarter, the company reported revenues of $153.8 million and net income of $21.0 million, or $0.28 per diluted share.
- Ball bonder equipment net revenue increased by 57.7% over the December quarter.
- Wedge bonder equipment net revenue increased 19.4% over the December quarter.
- Gross margins are 47.9%.
- Operating margins expanded to 21.1%
- Cash and cash equivalents increased to $275.7 million up $78.1 million from the prior quarter.
The company offered guidance for 3Q11, which included a net revenue projection of $255 million to $275 million.
KLIC has had a run-up in price. It is up more than 80% in the past six months. However, comparing KLIC valuation metrics with its industry peers creates the impression that the company is undervalued. We have established an intermediate price target of $17.50. This price target implies a PE multiple of 9.56X against consensus earnings estimates of $1.83; a PSR of 1.54 against consensus revenue estimates of $804.17 million.
KLIC’s margins and profitability ratios are superior to its industry peers and reflect improvement over the prior year. It has surprised analysts two quarters in a row with earnings significantly exceeding the consensus estimate. K&S reported $0.54 per share for 2Q11 vs. $0.36 for the consensus. Going forward, analyst estimates range from $1.46 to $2.13 for FY11, and $1.17 to $2.00 for FY12. The company carries $101,749 million in long term debt but has $275,676 in cash. The company produces free cash flow of about $1.12 per share.
Kulicke & Soffa is a highly volatile stock with a beta of 2.68. At this time, it is showing price momentum that may not hold up, so we advise looking for an entry point with which you are comfortable. It should also be noted that insiders have started selling off their shares.