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On Wednesday, B.Riley issued a downgrade for FormFactor (NASDAQ:FORM) shares, changing their recommendation from Buy to Neutral and significantly reducing the price target to $34 from the previous $64. The decision followed FormFactor’s fourth quarter earnings report, which slightly missed consensus expectations, and a notably lower guidance for the first quarter of 2025. According to InvestingPro data, eight analysts have recently revised their earnings estimates downward, with current analyst targets ranging from $44 to $65.
Craig Ellis from B.Riley cited a combination of factors for the downgrade, including weaker demand for PCs and smartphones impacting probe card demand, and a retreat in gross margins back into the high 30s. While the company maintained a healthy gross profit margin of 40.84% in the last twelve months, according to InvestingPro, the firm acknowledged the ongoing strength in DRAM HBM but expressed concerns over the performance of a major Foundry/Logic customer and the uncertain timing and potential of its recovery. Despite these challenges, FormFactor maintains strong financial health with more cash than debt on its balance sheet and a robust current ratio of 4.76.
Additionally, the analyst pointed to the impact of recent U.S. BIS shipment restrictions, which are expected to reduce China probe card demand by approximately $11 million quarter-over-quarter, presenting a significant year-over-year growth challenge. Despite FormFactor’s efforts to secure new customers and control costs, B.Riley has lowered confidence in the company’s near-to-intermediate term revenue reacceleration and gross margin expansion. For deeper insights into FormFactor’s financial health and growth prospects, investors can access comprehensive analysis through the Pro Research Report, available exclusively on InvestingPro, which covers over 1,400 US stocks with detailed metrics and expert analysis.
Ellis also mentioned the progress on AMD-related qualifications that could potentially generate initial revenue by late 2025. However, the combination of high-volume application weakness, shipment restrictions, and customer uncertainties has led to a reduction in annual earnings per share estimates for 2025 and 2026 by 20-25% from previous predictions. The analyst concluded that the path back to achieving target revenue of $800 million, 48.0% gross margins, and $2.00 earnings per share is now more opaque. Currently, FormFactor maintains revenue of $742.28 million with a 12.31% growth rate, and trades at an EV/EBITDA multiple of 36.06x, suggesting a relatively high valuation compared to historical levels.
In other recent news, FormFactor has been at the center of numerous analyst actions. Stifel analysts maintained a Hold rating on FormFactor stock, keeping a steady price target of $48. They anticipate that the semiconductor company’s fourth-quarter earnings will slightly exceed their estimates. Despite an expected decrease in foundry-logic revenue, they forecast a sequential increase in DRAM revenue, indicating a significant 75% year-over-year growth.
On the other hand, Citi analysts have upgraded FormFactor stock from Neutral to Buy, raising the price target from $44.00 to $51.00. This decision stems from FormFactor’s strong position in the High Bandwidth (NASDAQ:BAND) Memory (HBM) sector, especially with its dominant share at SK Hynix’s HBM business. They believe the company is well-positioned to capitalize on the ongoing robust demand for HBM.
In other developments, FormFactor shares along with other semiconductor equipment companies have seen a significant uptick following upgrades by industry analysts. Despite a challenging environment, analysts believe that the risk-reward is now skewed to the upside, with the stocks trading closer to historically attractive price-to-earnings levels. These recent developments paint a picture of cautious optimism for FormFactor’s future in the semiconductor industry.
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