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Advanced Energy (AEIS) Up 15% Since Last Earnings Report: Can It Continue?

It has been about a month since the last earnings report for Advanced Energy Industries (AEIS). Shares have added about 15% 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 Q3 Earnings Beat, Revenues Fall Y/Y

Advanced Energy Industries reported third-quarter 2023 non-GAAP earnings of $1.28 per share, beating the Zacks Consensus Estimate by 10.34%. However, the bottom-line figure declined 39.6% on a year-over-year basis.

Revenues of $410 million lagged the Zacks Consensus Estimate by 2.81% and dropped 20.6% year over year and 1% sequentially.

The backlog was $514 million at the end of the reported quarter. Advanced Energy expects a backlog between $400 million and $500 million at the end of the current quarter.

The company’s expansion is noteworthy. Year to date, AEIS has launched 19 new products across its markets. During the reported quarter, Advanced Energy launched five new products into the Industrial and medical market, including the iHP-Liquid, a fully-sealed liquid-cooled power supply designed to operate in harsh manufacturing environments.

End Market in Detail

Semiconductor Equipment: Revenues (45.1% of the total revenues) generated from the market fell 30.6% year over year to $185 million. The figure topped the Zacks Consensus Estimate by 1.06%.

Sequentially, revenues increased 7%. AEIS witnessed increased demand for RF products used in etch and deposition applications and strong performance in high-voltage products primarily used in ion implanters.

In partnership with key clients for eVerest and eVoS, orders have been secured, and these platforms are set to drive revenue expansion.

Industrial & Medical: Revenues (28.1% of the total revenues) from the market fell 3.6% year over year to $115.2 million and lagged the Zacks Consensus Estimate by 9.53%.

Soft Market Conditions Hurt Top-Line Growth.

Advanced Energy secured notable design wins in robotics, factory automation and thin film manufacturing applications in the reported quarter.

Data Center Computing: Revenues (16.7% of the total revenues) from the market were $68.3 million, down 22% year over year. However, the figure beat the consensus mark by 3.18%.

Sequentially, revenues jumped 16%. Top-line growth in the market was driven by significant design wins for AI applications in the hyperscale market.

Telecom & Networking: Revenues (10.1% of the total revenues) generated from the market were $41.4 million, down 2.6% year over year. The figure missed the Zacks Consensus Estimate by 11.02%.

Operating Results

In the third quarter, the non-GAAP gross margin was 36.1%, down 132 basis points (bps) on a year-over-year basis.

Sequentially, the gross margin expanded by 50 bps that benefited from improved mix and lower material costs.

Non-GAAP operating expenses were $97.3 million, down 2.5% year over year. As a percentage of revenues, the figure jumped 440 bps year over year to 23.7% in the reported quarter.

The non-GAAP operating margin was 12.4%, contracting 570 bps on a year-over-year basis but expanding 50 bps sequentially.

Balance Sheet & Cash Flow

As of Sep 30, 2023, cash and cash equivalents were $985.9 million compared with $455.2 million as of Jun 30, 2023.

Debt principal payments of $5 million were made in the reported quarter.

In the third quarter, Advanced Energy completed a private offering of $575 million aggregate principal amount of 2.50% Convertible Senior Notes due 2028.

For the third quarter, cash flow from operations was $72.7 million, higher than $23.6 million in the second quarter.

Advanced Energy made dividend payments of $3.8 million in the reported quarter. AEIS spent $40 million to repurchase 370,000 shares of its common stock.

Guidance

For fourth-quarter 2023, Advanced Energy expects non-GAAP earnings of $1.15 per share (+/- 20 cents).

Advanced Energy anticipates revenues of $405 million (+/- $15 million). The Zacks Consensus Estimate for the same is pegged at $437.17 million, suggesting a year-over-year decline of 10.92%.

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How Have Estimates Been Moving Since Then?

Fresh estimates followed a downward path over the past two months.

VGM Scores

At this time, Advanced Energy has an average Growth Score of C, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

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

Outlook

Advanced Energy has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.

Performance of an Industry Player

Advanced Energy belongs to the Zacks Semiconductor Equipment - Wafer Fabrication industry. Another stock from the same industry, Lam Research (LRCX), has gained 17.7% over the past month. More than a month has passed since the company reported results for the quarter ended September 2023.

Lam Research reported revenues of $3.48 billion in the last reported quarter, representing a year-over-year change of -31.4%. EPS of $6.85 for the same period compares with $10.42 a year ago.

Lam Research is expected to post earnings of $7.05 per share for the current quarter, representing a year-over-year change of -34.2%. Over the last 30 days, the Zacks Consensus Estimate has changed -0.2%.

Lam Research has a Zacks Rank #3 (Hold) based on the overall direction and magnitude of estimate revisions. Additionally, the stock has a VGM Score of B.

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