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Advanced Energy (AEIS) Up 0.6% Since Last Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Advanced Energy Industries (AEIS). Shares have added about 0.6% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Advanced Energy due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Advanced Energy Beats on Q4 Earnings & Revenues

Advanced Energy Industries reported fourth-quarter 2020 non-GAAP earnings of $1.49 per share, beating the Zacks Consensus Estimate by 9.6%. Further, the bottom line was within the management’s guidance of $1.10 to $1.50 per share.

The bottom line also improved 71.3% from the year-ago quarter but declined 10.2% sequentially.

Revenues of $370.97 million surpassed the Zacks Consensus Estimate of $365.03 million and were within management’s guidance of $340-$380 million. Moreover, the top line rose 9.7% from the year-ago quarter but decreased 4.8% from the prior quarter.

The year-over-year improvement in the top line can be attributed to favorable demand conditions. Further, a strong momentum across semiconductor equipment, and telecom and networking contributed well.

Further, a solid performance delivered by the company across North America, Asia and other countries was a major upside.

However, the coronavirus-induced supply-chain constraints remained concerns. Further, weakening momentum across data centers, and industrial and medical was an overhang. Also, softness in the European region was a negative.

Nevertheless, the company is optimistic about its growing traction across enterprise computing customers. Further, prospects related to 5G remain key levers.

Additionally, positive contribution from Artesyn Embedded Power buyout remains a major positive.

All these factors are likely to help the stock rebound in the near term.

Top Line in Detail

Product revenues rose 8.3% year over year to $337.5 million (91% of total revenues) in the fourth quarter.

Services revenues improved 25.7% from the prior-year quarter to $33.5 million (9% of revenues).

Product Line in Detail

Semiconductor Equipment revenues grew 32.5% year over year to $165.8 million (44.7% of total revenues). The company witnessed heavy investments in foundry/logic, which acted as a boon. Also, hefty NAND memory investments contributed significantly to the results. Apart from this, strong shipment of eVoS evaluation units was a positive. Further, rising RF design wins remained a tailwind.

Industrial & Medical revenues fell 3.1% year over year to $93.8 million (25.3% of revenues). Sluggishness in the demand for some critical care equipment and elective care applications remained an overhang.

Telecom & Networking revenues were $46.1 million (12.4% of revenues), up 19.9% from the prior-year quarter. Strong 5G investments remained a major positive.

Data Center Computing revenues were $65.3 million (17.6% of revenues), down 16.2% from the year-ago quarter. This was primarily attributed to a weak demand environment, owing to data center digestion among hyperscale customers. Further, a slowdown in IT spending remained worrisome.

Operating Results

In the fourth quarter, non-GAAP gross profit was 39.5%, which expanded 360 basis points (bps) from the year-ago quarter.

Non-GAAP operating expenses were $76.9 million, down 1.4% year over year. As a percentage of revenues, the figure contracted 240 bps from the year-ago quarter to 20.7% in the reported quarter.

Further, non-GAAP operating margin was 18.7%, expanding 590 bps from the prior-year quarter.

Balance Sheet & Cash Flow

As of Dec 31, 2020, cash, cash equivalents and marketable securities were $483.02 million compared with $431.6million as of Sep 30, 2020.

Long-term debt stood at $304.5 million at the end of the fourth quarter, down from $308.8million at the end of the third quarter.

During the fourth quarter, cash flow from operations was $67.1 million compared with $67.5 million in the third quarter.

Further, the company generated free cash flow of $56 million in the reported quarter.

1Q21 Guidance

For first-quarter 2021, Advanced Energy expects non-GAAP earnings between $1.10 and $1.40 per share.

Further, the company anticipates revenues of $335-$365 million.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates.

VGM Scores

At this time, Advanced Energy has a nice Growth Score of B, though it is lagging a bit on the Momentum Score front with a C. Charting a somewhat similar path, the stock was allocated a grade of B on the value side, putting it in the top 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Advanced Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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