Despite the short-term slump, the semiconductor industry’s long-term growth prospects remain bright. While semiconductor sales fell in the first quarter of 2023, sales increased by 0.3% in March 2023 compared to February 2023, the first month-over-month increase in a year, providing optimism for a rebound.
So, investors could take a look at quality chip stocks Analog Devices, Inc. (ADI), Camtek Ltd. (CAMT), and inTEST Corporation (INTT).
Governments worldwide are investing heftily to build self-sufficiency in the semiconductor and electronics supply chain. The Biden-Harris Administration announced the first CHIPS for America grant opportunity earlier this year in order to revitalize the American semiconductor industry.
In addition, the Biden administration proposed a new 25% investment tax credit for semiconductor production in the United States. The global semiconductor market is expected to grow at a 13.1% CAGR until 2032.
Investors’ interest in chip stocks is evident from the VanEck Vectors Semiconductor ETF’s (SMH) 20% returns over the past six months.
Let’s delve deeper into the fundamentals of the stocks mentioned above.
Analog Devices, Inc. (ADI)
ADI designs, manufactures, tests, and markets integrated circuits (ICs), software, and subsystems that leverage analog, mixed-signal, and digital signal processing technologies.
In terms of forward Price/Book multiple, ADI is trading at 2.62 is 29.8% lower than the industry average of 3.74. In addition, ADI’s forward EV/EBIT of 15.89x is 9.1% lower than the industry average of 17.47x.
ADI’s trailing-12-month ROTA of 4.57% is significantly higher than the industry average of 0.26%. Its trailing-12-month ROCE of 44.88% is significantly higher than the industry average of 0.71%.
ADI’s revenue increased 21.1% year-over-year to $3.25 billion in the fiscal first quarter, which ended January 28, 2023. Its adjusted operating income increased 35.1% year-over-year to $1.66 billion. Also, its EPS increased 41.8% year-over-year to $2.75.
The consensus revenue estimate of $12.72 billion for the year ending October 2023 represents a 5.9% increase year-over-year. Its EPS is expected to grow at 12.6% year-over-year to $10.78 for the same period. It surpassed EPS estimates in all four trailing quarters.
ADI’s shares have gained 17.8% over the past year to close the last trading session at $191.31.
ADI’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
ADI also has a B grade for Momentum, Sentiment and Quality. It is ranked #25 out of 90 stocks in the Semiconductor & Wireless Chip industry. Click here for the additional POWR Ratings for Value, Stability, and Growth for ADI.
Camtek Ltd. (CAMT)
Headquartered in Migdal HaEmek, Israel, CAMT develops, manufactures, and sells inspection and metrology equipment. It serves various semiconductor industry segments and sells its products across the Asia Pacific, the U.S., and Europe.
CAMT’s forward EV/EBIT multiple of 13.48 is 28.3% lower than the industry average of 18.79. Its forward non-GAAP P/E multiple of 16.64 is 20.6% lower than the industry average of 20.95.
CAMT’s trailing-12-month ROCE of 21.92% is significantly higher than the 0.72% industry average. Its trailing-12-month ROTA of 11.53% is significantly higher than the 0.31% industry average.
CAMT’s total current assets came in at $561.57 million for the period that ended March 31, 2023, compared to $556.96 million for the period that ended December 31, 2022. Also, its current liabilities came in at $74.45 million, compared to $88.50 million for the same period.
Analysts expect CAMT’s revenue to increase 10.8% year-over-year to $323.53 million in 2024. Its EPS is expected to grow 10.5% to $1.86 in 2024. It surpassed EPS estimates in all four trailing quarters. The stock has gained 18.9% over the past six months to close its last trading session at $27.96.
It’s no surprise that CAMT has an overall B rating, equating to a Buy in our POWR Ratings system. It has an A grade for Momentum and a B for Stability and Quality. It is ranked #27 in the same industry.
Beyond what is stated above, we’ve also rated CAMT for Sentiment, Value, and Growth. Get all CAMT ratings here.
inTEST Corporation (INTT)
INTT supplies test and process solutions for use in manufacturing and testing in automotive, defense/aerospace, industrial, life sciences, security, and semiconductor markets worldwide. The company operates through three segments: Electronic Test; Environmental Technologies; and Process Technologies.
On April 18, 2023, INTT announced that its wholly owned subsidiary, inTEST Thermal Solutions, has become a distributor for Stellar Scientific (“Stellar”), a research and development-focused equipment provider to the scientific community.
Stellar Scientific and inTEST Thermal Solutions have partnered to offer a wide range of inTEST’s North Sciences Ultra-Low Temperature (ULT) biomedical freezers to clients. Importantly, the agreement broadens market opportunities for North Sciences products by using Stellar’s GSA contract to serve US government agencies.
INTT’s forward EV/Sales multiple of 1.84 is 33.3% lower than the industry average of 2.75. Its forward Price/Sales multiple of 1.79 is 32.3% lower than the industry average of 2.65.
INTT’s trailing-12-month ROCE of 17.19% is significantly higher than the 0.72% industry average. Its trailing-12-month ROTA of 9.43% is significantly higher than the 0.31% industry average.
INTT’s revenue came in at $31.92 million for the fiscal first quarter that ended March 31, 2023, up 32.5% year-over-year. Also, its non-GAAP EBITDA increased 126.1% year-over-year to $4.83 million. Its non-GAAP net earnings and EPS came in at $3.27 million and $0.29, up 158.2% and 141.7% year-over-year, respectively.
Street expects INTT’s revenue to increase 10.9% year-over-year to $129.61 million in 2023. Its EPS is expected to increase 17.2% year-over-year to $1.16 in 2023. It surpassed EPS estimates in three of four trailing quarters. Over the past year, the stock has gained 206.1% to close the last trading session at $21.52.
INTT’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It is ranked #26 in the same industry. It has an A grade for Momentum and a B for Growth. To see additional INTT’s rating for Value, Stability, Sentiment, and Quality, click here.
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ADI shares were trading at $189.85 per share on Tuesday morning, down $1.46 (-0.76%). Year-to-date, ADI has gained 16.28%, versus a 9.69% rise in the benchmark S&P 500 index during the same period.
About the Author: Rashmi Kumari
Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.
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