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Bear of the Day: Ultra Clean Holdings (UCTT)

Kevin Cook
ARRIS International (ARRS) saw a big move last session, as its shares jumped nearly 7% on the day, amid huge volumes.

Ultra Clean Holdings (UCTT) is a $560 million developer and supplier of critical subsystems for the semiconductor capital equipment, flat panel, solar and medical device industries.

 

Ultra Clean offers its customers an integrated outsourced solution for gas delivery systems and other subassemblies, improved design-to-delivery cycle times, component neutral design and manufacturing and component testing capabilities. The company is headquartered in Menlo Park, California.

 

Ultra Clean has crossed the $1 billion revenue threshold this year, which certainly makes it a value on a price-to-sales ratio basis.

 

But earnings estimates have dropped significantly since the company reported their Q2 on July 26 and that's why the stock is in the cellar of the Zacks Rank.

 

In the past 30 days, this year's consensus EPS projection has fallen 16% from $2.30 to $1.93. Next year's profit forecast also dropped buy only 11% to $2.38.

 

The analyst downward revisions were inspired by management commentary and guidance about the second half outlook. One of the company's top customers is Lam Research (LRCX) who also reported on July 26 and indicated on its earnings call that it expects September to be its trough quarter for the year in a transitory weak patch in the semi equipment cycle.

 

But while Lam has only gone up since earnings, the pessimism lingers for UCTT. Stifel Nicolaus analysts lowered their price target to $26 (from $30) while keeping a Buy rating on the stock, citing that most of the bad news is now priced-in.

 

Until the earnings estimates stop going down, and start heading back up, it may be best to stand aside in UCTT.

 

For more on the recent troubles in chip land, see my Bull of the Day on Micron (MU) with lots of links to recent semiconductor research and commentary I've done on this important sector in the Tech Super Cycle.

 

Kevin Cook is a Senior Stock Strategist for Zacks Investment Research where he runs the TAZR Trader and Healthcare Innovators services. Click Follow Author above to receive his latest stock research and macro analysis.

 

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Ultra Clean Holdings, Inc. (UCTT) : Free Stock Analysis Report
 
Micron Technology, Inc. (MU) : Free Stock Analysis Report
 
Lam Research Corporation (LRCX) : Free Stock Analysis Report
 
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