Vicor Corporation: Advanced Products Customer Revenues, Q4 '19 Bookings Guidance, Implies H1 '19 Trough In Data Center Shipments

Summary

• Advance Product revenues grew ~85% sequentially (Direct, CMs, etc) in 3Q19. Growth re-acceleration from 1H19 levels in DataCenter shipments driven by resumption of server production by a major customer.
• Vicor management was unable to provide revenue guidance for 4Q19 but did provide bookings outlook, with potential for ~30% sequential growth. If achieved, it would imply a book-to-bill over 1x.
• We anticipate investors will learn more about Vicor Corporation's designs in key customer products in the coming quarters.  Increased visibility could attract larger institutional investors.
• Raising estimates for 2020E/2021E, as we see an inflection point for Vicor over the next six months.  Following a decade of investments, we believe the company is on the cusp of realizing significant revenue contribution.
• We raise our projected valuation target to ~$75/share, assuming a 25x forward P/E multiple, utilizing ~$3.00/share in 2022E diluted EPS.  This increased multiple is warranted given potential diluted EPS 5yr CAGR ('16-'21) of ~110%, and increased multiples for comparable companies.

Introduction

Following Vicor Corporation's (NASDAQ:VICR) reported 2019 third-quarter results, which included an ~85% sequential increase in Advanced Products orders from direct, contract manufacturers, and non-stocking distributors, and fourth-quarter bookings guidance of +30%, following +40% in the third quarter, we believe shares are nearing an inflection point in 2020. The strong revenue in the third quarter and bookings guidance for the fourth quarter was due in part to re-acceleration of a major customer's server platform utilizing Vicor's Power-on-Package technology, as well as other Advanced Product orders from new customers. It is widely speculated among investors that Vicor's major customer may be Nvidia (NVDA), transitioning towards a second-generation server design, incorporating Vicor's Power-on-Package technology. We believe other customers could be leading GPU/ASIC based AI accelerator product companies.

We now have increased confidence in our view that Vicor's Power-on-Package technology could be the primary driver of revenue growth in our 2020E and beyond. This is somewhat offset by lower expectations for the company's 48V opportunity as data centers transition from prior use of 12V technology, as we have pushed out the timing of revenue contribution.

Following the third-quarter results, and fourth-quarter guidance, we have increased both our forward estimates for 2020E-2022E, as well as the forward P/E multiple we are willing to assign given potential growth opportunities. Our revised estimates suggest adjusted diluted EPS for 2022E, which now includes stock compensation costs of ~$3m+ per year, could generate a 5yr CAGR ('16-'21) of >100%. Along with potential 5yr CAGR, we see acceleration of both revenues and adjusted diluted EPS in 2022 as well. Our updated forward P/E multiple of 25x for 2022E estimated adjusted diluted EPS of ~$3.00, derives a potential future valuation of ~$75/share, or >100% from the recent share price of $37.00.

Vicor remains a top pick in 2019, and will likely

Analyst’s Disclosure:I am/we are long VICR. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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