Analysts Mixed on FormFactor's Earnings Disappointment

Several firms out with comments on FormFactor (FORM) after the company issued weaker than expected results and guidance last night:

- Cowen is clearly the most negative here calling the results a mess and 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 revenues.

FORM is caught in an extremely tough DRAM downturn that should take time to correct. FORM's customers are losing huge money 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 short-term, there is nothing here to get excited about except that the stock is cheap and investors get a call option on long-term 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 its expectations for Q1 and its guidance missed Q2 consensus. While the company shipped ~2x Harmony cards q/q and regained some prior share losses, it believes 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/share including cash of ~$11.40/shr and as such, they expect the shares to trade at close to 1x BV/share until visibility improves and the company returns to profitability. Maintain Neutral rating. Target goes to $17 from $18.

- Morgan Stanley is the most bullish of the three saying it's 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 the firm's view.

Morgan thinks 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 its 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 shares almost cut in half since their peak in September of last year, they think the risk-reward profile is not compelling for a downgrade at the current levels. Maintains Overweight while lowering target 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.

Comments

[dkhkch]

Oh yeah, sure it will bounce... NOT..., just like your posts on ABH and NTRI being bounce candidates. ABH went from the bounce area of $17 all the way down to $5 before it BOUNCED, and NTRI went from the bounce area of $17 down to $13 before it BOUNCED, and remember Notable Call's Headliner Article, "Bear Stearns Deal should Happen at $2," where Notable Calls was "Tempted" to SHORT!!! And let's not forget Notable Calls terrible SGP call.
I'm not saying you cannot be wrong. Everyone gets them wrong, some more then others, but for heavens sake, at least be more accurate then a coin toss. If you go through Notable Calls posts, and randomly pick out ten articles, and ten at random, Notable Calls success rate is around 50%. The most amateur, of the most amateur investor can get 50%, just toss a coin, Heads Long, Tails Short.
Just saying if you are thinking of acting on Notable Calls "Actionable" articles... LET THE BUYER BEWARE...