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On Monday, Shimmick Corp (NASDAQ:SHIM) saw its price target adjusted by Craig-Hallum, dropping to $3.00 from the previous $4.00. Despite this change, the firm maintained its Hold rating on the company's stock. This decision follows Shimmick's second-quarter performance, which fell short of expectations, and a downward revision of the company's 2024 guidance. The slower than anticipated increase in new project activities, coupled with rising costs and growing legal fees related to contract modifications and recoveries on legacy projects, were cited as the main reasons for the adjustment.
Shimmick took a significant financial step by settling a disputed legacy loss contract with a one-time charge of $30 million. This settlement is expected to ultimately benefit the company's liquidity, as it will lead to a $33 million cash inflow in the second half of 2024, while also removing the ongoing legal expenses and distractions associated with the litigation over the project. This move is seen as a positive step towards improving the company's financial health.
Moreover, Shimmick has recently made moves to strengthen its balance sheet. Last week, the company completed a sale-leaseback transaction for an equipment facility in California, which resulted in $17 million in proceeds and allowed the company to repay some of its debt. These financial maneuvers demonstrate Shimmick's proactive efforts to manage its finances amid challenging times.
Despite these efforts, Shimmick's backlog of projects has continued to decline, with a book-to-bill ratio of 0.4x on new projects. However, the company is actively recruiting project estimators, anticipating an increase in project activity. Craig-Hallum's analysts have expressed a constructive view on the long-term prospects for the water infrastructure sector. Nevertheless, the firm's Hold rating reflects a cautious stance, as they await improved execution, results, and backlog from Shimmick, especially as the company completes its larger-scale, higher-risk legacy projects and transitions towards smaller to mid-sized water-focused projects.
In other recent news, Shimmick Corporation disclosed disappointing Q2 results, with an adjusted loss of $1.60 per share, significantly missing analyst projections of earnings of $0.12 per share. Revenue was also lower than anticipated, reported at $91 million against the expected $175.65 million. The company's results were notably affected by a $30 million net loss on a legacy project settlement, which included a $23 million reduction to revenue. Excluding this impact, Shimmick Projects' revenue was $84 million in Q2, a decrease from $103 million in the same period last year.
CEO Steve Richards commented on the company's progress towards a more capital-light business model, mentioning the sale of the assets of the foundation business, the sale-leaseback of the equipment yard, and the legacy loss project claim settlement. These are all part of the company's transformation plan aimed at capturing growth opportunities in the California water and critical infrastructure market.
Looking ahead, Shimmick forecasts a generally flat year-over-year revenue for Shimmick Projects in fiscal 2024, with a gross margin between 4-9%. The company also projects Legacy Projects revenue to be between $55-65 million, with a negative gross margin of 80-90%. These recent developments provide crucial insights for investors into the company's performance and future expectations.
InvestingPro Insights
In light of Shimmick Corp's recent financial maneuvers and Craig-Hallum's adjusted price target, real-time data from InvestingPro provides additional context for investors. Shimmick's market capitalization stands at a modest $90.02 million, reflecting a company size that may influence its market liquidity and volatility. The company's performance over the last twelve months as of Q2 2024 shows a significant revenue decline of 24.02%, indicating the challenges faced in generating sales growth. This aligns with Craig-Hallum's concerns regarding Shimmick's backlog of projects and the need for improved execution and results.
One InvestingPro Tip that stands out is Shimmick's high price volatility, which is corroborated by a Price / Book ratio of 66.34, suggesting that the stock trades at a significant premium relative to its book value. Additionally, the company's short-term price performance has been tumultuous, with a 16.25% drop over the last week and a 33.83% decline over the past month. However, it's worth noting that Shimmick has experienced a strong return over the last three months, with a 57.65% increase, indicating some recovery potential.
Investors considering Shimmick should be aware that the company is trading at a low revenue valuation multiple and is expected to see a drop in net income this year. These factors, combined with the anticipated sales decline and concerns over the company's ability to make interest payments on debt, paint a cautious picture. For those seeking more comprehensive analysis, there are additional InvestingPro Tips available, which can provide further insight into Shimmick's financial health and market position.
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