Monday - Citi analysts have upgraded FormFactor (NASDAQ:FORM) stock from Neutral to Buy, while also raising the price target from $44.00 to $51.00. The decision comes as the semiconductor company is believed to be nearing a cyclical trough in its business phase. According to InvestingPro data, FormFactor maintains strong financial health with an overall score of "GOOD" and holds more cash than debt on its balance sheet, supporting its ability to navigate market cycles.
The upgrade is based on FormFactor's strong position in the High Bandwidth (NASDAQ:BAND) Memory (HBM) sector, particularly with its dominant share at SK Hynix's HBM business. Analysts at Citi highlight that FormFactor is poised to capitalize on the ongoing robust demand for HBM and the associated challenging yields, a trend that is anticipated to continue at least into the first half of 2025. The company's solid financial foundation is reflected in its impressive gross profit margin of 41% and return on assets of 12.4%.
Despite the lackluster recovery in the handset and PC markets, FormFactor is actively working to diversify its front-line (F/L) business into the GPU segment with major industry players. This strategy could potentially broaden the company's revenue base and reduce dependency on the more volatile segments of the market.
In comparison to its semiconductor capital equipment peers, FormFactor has a relatively low percentage of revenue from China, cited at low-teens. Furthermore, the company's management expects its domestic business, which currently accounts for approximately 50% of its total revenue, to decrease to zero in the foreseeable future.
The analyst's commentary underscores FormFactor's strategic positioning and the expected benefits from market dynamics in the semiconductor industry. With the upgrade and increased price target, Citi signals confidence in FormFactor's potential for growth and resilience amidst the shifting landscape of the technology sector.
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