Cohu ‘Poised To Deliver Much Improved Profitability,’ Stifel Says In Upgrade

May 7, 2019

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Courtesy of Benzinga.

Cohu 'Poised To Deliver Much Improved Profitability,' Stifel Says In Upgrade

Semiconductor test equipment maker Cohu, Inc. (NASDAQ: COHU) reported Monday after the market close with first-quarter results that fell mostly in line with expectations.

The Analyst

Stifel analyst Brian Chin upgraded Cohu from Hold to Buy and increased the price target from $18.50 to $22.

The Thesis

Cohu’s improved structural earnings — not its results and outlook — are the story, Chin said in a Tuesday note. (See his track record here.)

The company is accelerating its cost restructuring actions, which is expected to yield higher-than-initially estimated cost savings of $10 million per quarter, the analyst said.

“We believe these actions not only improve the thrucycle earnings power of the company but should also help restore some confidence in the benefits/merits of combining with Xcerra.”

Stifel expects a stronger operating model to emerge for Cohu in the next upcyle, with its underlying business likely to enter into an initial recovery phase in the second half of 2019.

Notwithstanding expectations that the recently softened markets such as auto and industrial will trend more stable than up over the next few quarters, Chin said Cohu has enough customer/product ramps brewing to support growth in the back half of 2019 off a cyclically depressed first half.

Stifel raised its calendar 2020 EPS estimate from $1.65 to $1.85 but maintained its revenue estimate. The sell-side firm sees scope for revenue upside if cyclical semi unit momentum accelerates or if Cohu executes on its revenue synergy initiatives.

” … As one of the few semi stocks yet to discount in a cyclical recovery, we believe current levels offer an attractive entry point into a name that has lagged but is poised to deliver much improved profitability into and through the cycle,” Chin said.