Rudolph Tech Blew Earnings Expectations Out Of The Water, But There's More Upside: Credit Suisse

In a report published Tuesday, Credit Suisse analyst Farhan Ahmad upgraded the rating on Rudolph Technologies, Inc. (NYSE: RTEC) from Neutral to Outperform, while raising the price target from $12.50 to $15.00. While the company’s C2Q and C3Q results were meaningfully ahead of expectations, the analyst expects more than 25 percent upside to the share price.

Outperforming Expectations

With Rudolph Technologies reporting its C2Q and C3Q EPS 33 percent and 40 percent ahead of the Street consensus, respectively, the analyst believes that the company is on track to achieving revenue growth of over 25 percent, year on year, in 2015, significantly ahead of the prior estimate.

“RTEC is outperforming peers in both Front End (FE) and Back End (BE),” analyst Ahmad said, while mentioning that the CY15 FE and BE were over 24 percent and over 28 percent respectively, well ahead of its peers.

“We believe that relative outperformance for RTEC is driven by higher exposure to advanced packaging and see the stock as attractive at current valuations,” the Credit Suisse report stated.

Future Expectations

The analyst expects further increase in adoption of advanced packaging, with 2.5D and 3D packing going mainstream in C2H15. Also, Litho systems shipments are expected to increase from 2 in 2014 to 4 in 2015, 6 in 2016 and 10 in 2017, offering Rudolph Technologies a growth path to $40 million annually in litho revenues.

In addition, the company appears to be an attractive M&A target, given its fairly high margins and exposure to “highly desirable” advanced packaging capex.

2Q Results

Rudolph Technologies reported its 2Q results in detail in a press release, published August 4 on Yahoo Finance. The company reported that its 2Q revenue increased 13 percent sequentially, driven by inspection sales and advanced packaging lithography.

While GAAP net income came in at $6 million and Non-GAAP net income at $7.6 million, gross margin beat the guidance, at 54 percent.

“JetStep® Advanced Packaging Lithography System and multiple NSX® Inspection System orders were received from a leading OSAT for use in their planned capacity expansion for high-performance fan-out wafer level packaging applications,” the press release said.

The company also reported receiving orders worth a total of about $17million, from a leading OSAT facility and a major semiconductor foundry, for its NSX® Series and Wafer Scanner™ inspection systems.

At the end of Q2, cash and marketable securities were worth $156.2 million, as compared to $158.4 million at the end of Q1. However, accounts receivable and inventory increased as of June 30.

Rudolph Technologies also announced that it had repurchased about 363,000 shares as part of its buyback program, bringing the total buyback to about 2.3 million shares since 2Q14.