Monday, shares of Cohu (NASDAQ:COHU) experienced a change in their stock rating as Needham downgraded the semiconductor equipment manufacturer from Buy to Hold.
The decision by Needham analysts was influenced by projections of a moderate equipment cycle for both the front-end and back-end sectors in the upcoming two years.
Needham's analysis suggests that the current market valuations of Cohu, which stands at 34 times next twelve months (NTM) price-to-earnings (P/E), and ICHR, trading at 24 times NTM P/E, are significantly higher than their historical peak multiples.
To sustain these valuations, Cohu and ICHR would need to achieve compound annual growth rates (CAGR) of 30% and 25%, respectively, over the next two years.
The analysts at Needham have expressed skepticism regarding the prospects of achieving such aggressive growth targets, given the strength of the current upcycle. They believe the expected mild cycle does not support the ambitious growth rates required to justify the high valuation multiples at which both companies are currently trading.
Additionally, Needham compared Cohu's valuation with that of Ultra Clean Holdings (NASDAQ:UCTT), which is trading at a lower NTM P/E of 14, with a business model similar to ICHR's. The firm indicated that UCTT's more modest valuation makes it a more attractive buy relative to ICHR.
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