4. Photronics, Inc. (NASDAQ:PLAB)
Market Cap as of September 22: $925.34 million
Photronics, Inc. (NASDAQ:PLAB) is one of the world’s largest semiconductor photomask suppliers. Around the end of August, Photronics, Inc. (NASDAQ:PLAB) posted impressive FQ3 results. The revenue surged 8% sequentially to $219.9 million. Net income was recorded at $31.2 million, representing an 82% YoY growth. Most of the revenue for the company is generated from the IC segment, which was up 11% sequentially and 37% on a YoY basis to $161.3 million. However, due to its weak Q4 guidance, the stock has taken a plunge and is trading at the lower end of its 52-week range of $12.18 – $25.81 at $15.00 as of September 23. At this price, the stock seems to provide an attractive buying opportunity.
On August 31, DA Davidson analyst Thomas Diffely reiterated a Buy rating on Photronics, Inc. (NASDAQ:PLAB) and lowered the price target to $28 from $30. The analyst noted that the company had a record high Q3 revenue and strong end market demand but weak Q4 guidance due to market uncertainty. He added that he believes the rough patch will be temporary.
Here is what Meridian Funds specifically said about Photronics, Inc. (NASDAQ:PLAB) in its Q2 2022 investor letter:
“Photronics, Inc. (NASDAQ:PLAB) is a semiconductor capital equipment company and a leader in photomasks, a critical component in the manufacturing of semiconductors and flat panel displays. The company’s earnings declined from a peak in 2015 due in part to a long-term trend within the semiconductor industry away from ASICs to FPGAs, which, to put it simply, allowed more semiconductor functionality to be made with fewer photomasks. Earnings also were pressured by significant investments made by Photronics to build out capacity in China, which took time to ramp up to profitability. We invested in the company in the second quarter of 2021 due to our thesis that 1) increased semiconductor content in a wide variety of products would revitalize the ASIC market; 2) its China investments would pay off, partially helped by an emerging trend toward localization of semiconductor production; and 3) Photronics is a well-managed industry leader with a strong balance sheet and improving return on capital. Despite macroeconomic worries about the semiconductor industry, the company’s stock advanced on news that it had exceeded earnings forecasts for the fourth consecutive quarter, with projections for 2022 earnings per share rising to $1.90 per share, up from less than $1 at the time of our investment. We added to our position in Photronics during the quarter when the strong results were initially not recognized. We believe current secular trends should remain intact for several years, however, we are conscious of the potential for near-term macro-driven volatility.”
