PDF Solutions, Inc.
) is a technology and service provider for integrated chip (IC)
manufacturers, and its shares have been trending higher since
reporting its second quarter results on August 8. Currently, this
Zacks #2 Rank (Buy) stock is trading around its 52-week high with
the potential for further upside.
Q2 Beat on Higher Product Demand
PDF Solutions reported fiscal second quarter 2012 earnings per
share of 17 cents, beating the Zacks Consensus Estimate of 11 cents
by 54.6%. The earnings surprise was driven by higher revenue
generation and cost control measures.
Net sales jumped 31.3% year over year and 9.1% from the prior
quarter to $22.5 million, inching past the Zacks Consensus Estimate
of $22.0 million. Revenue growth was driven mainly by strength in
the Gainshare (Royalty) segment and to a lesser extent by the
Design Solutions segment. Royalty income increased on the back of a
higher yield witnessed by IC manufacturers.
The company's gross margin improved 371 basis points from the
year-ago quarter to 60.5%. Margin expansion was mainly attributable
to higher contribution from Gainshare.
Though the company did not provide a quantitative guidance for the
quarters to come, it would be prudent to mention that continued
higher contribution from Gainshare could act as a catalyst going
forward. Foundries are expected to be one of the strongest segments
of the semiconductor market this year, driven by demand for mobile
devices. Given that PDF Solutions provides yield management
solutions and has companies like Globalfoundries and Samsung,
growth rates should be sustainable through the year.
Earnings Momentum on the Rise
Analyst coverage of the stock is limited. However, the one estimate
for the company was raised following the earnings release, sending
the Zacks Consensus Estimate for the third quarter upward by 7.7%
to 14 cents.
Full-year 2012 estimates also advanced, with the Zacks Consensus
Estimate jumping 16.0% to 58 cents per share.
Valuation is Justified
PDF Solutions shares are up 72.7% year-to-date compared with a
10.7% increase for the S&P 500.
Shares are trading at a P/E of 20.6X with respect to the peer group
P/E of 17.7X (premium of 16.3%). This appears justified given that
the 1-year return on equity of 19.9% is above the 17.1% average for
the peer group.
PDF Solutions, an ace provider of yield improvement technology and
services, competes with KLA-Tencor Corp. (
), Applied Materials Inc. (
), Mentor Graphics Corp. (
) and Synopsys Inc. (
). The company's shares have traded at a premium to its rivals.
The significant increase in the stock price in recent months was on
account of the encouraging sales trend and consistent earnings
surprises. The stock is currently above its 50 and 200-day moving
averages of 9.78 and 8.77, respectively.
Trading volumes are considerably lower than its peers.
California-based PDF Solutions, Inc., a 20-year old company,
designs technologies that help in improving yield of semiconductor
ICs. Its software and services enable semiconductor companies to
improve their manufacturing process, which helps them to market
products in huge volumes, faster. Prime customers of PDF Solutions
include Toshiba Corporation, Samsung Electronics and IBM Corp.
PDF SOLUTIONS (PDFS): Free Stock Analysis
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