Ultra Clean stock price target cut to $40 by Needham

Tuesday, Ultra Clean Holdings, Inc. (NASDAQ:UCTT) shares experienced a change in their price target, as Needham analysts adjusted their outlook following the company’s latest financial results. The new price target is set at $40.00, a decrease from the previous $44.00, while the firm continues to recommend a Buy rating on the stock. According to InvestingPro data, analyst targets for UCTT range from $44 to $60, with the stock currently trading at $36.06, suggesting potential upside. The stock appears undervalued based on InvestingPro’s Fair Value analysis.

Ultra Clean, a supplier of critical subsystems for the semiconductor industry, reported earnings that fell short of expectations, primarily due to a significant reduction in its direct business in China for the first quarter of 2025. The company attributed the shortfall to delays in product qualifications with a major Chinese semiconductor capital equipment customer and an abrupt drop in demand within the Chinese semiconductor capital equipment market. Despite current challenges, InvestingPro data shows the company maintains strong liquidity with a current ratio of 2.75, while three analysts have recently revised their earnings expectations upward.

Despite this setback, Ultra Clean’s management is forecasting a 5% growth in wafer fabrication equipment (WFE) for the year and anticipates that the company will still exceed the overall WFE market growth. However, they also noted that the margin by which they outperform might be smaller due to the issues in China, estimating a year-over-year decline of about 70% in that segment.

Needham’s analysts believe that the steep decrease in Ultra Clean’s revenue from China could serve as a "clearing event" for the company’s stock. This event might help resolve the concerns that have led to the stock trading at a significant discount compared to its peers, which has been largely attributed to its direct business in China, accounting for roughly 10% of its total revenue.

In response to the recent developments, Needham has revised its estimates for Ultra Clean and reduced the price target to $40.00. Despite the price target adjustment, Needham maintains a Buy rating on the company’s shares, suggesting confidence in Ultra Clean’s market position and future prospects.

In other recent news, Ultra Clean Holdings Inc. reported its fourth-quarter 2024 earnings, surpassing analyst expectations with an earnings per share (EPS) of $0.51, compared to the forecasted $0.44. The company’s revenue also exceeded projections, reaching $563.3 million against the anticipated $531.01 million. For the full year, Ultra Clean’s revenue grew by 21% to $2.1 billion, with a net income of $65.2 million, significantly up from $25.2 million in 2023. Despite these positive results, the company has provided guidance for flat revenue growth in the first half of 2025, projecting Q1 revenue between $500 million and $555 million. Analysts from firms such as TD Cowen and Needham have noted challenges in the China market due to customer-specific issues and inventory digestion. Additionally, Ultra Clean’s CFO, Sherry Savage, highlighted the company’s focus on AI-related semiconductor equipment as a key growth area. The company continues to navigate macroeconomic pressures and supply chain constraints, aiming for a recovery in the latter half of 2025.

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