Piper Sandler has adjusted its price target for SkyWater Technology, Inc (NASDAQ: SKYT), a semiconductor company, reducing it to $9.00 from the previous $14.00.
Despite the decrease, the firm maintained its Overweight rating on the stock. The revision follows SkyWater's recent quarterly financial report, which exceeded market expectations with higher-than-anticipated performance on both revenue and earnings.
SkyWater's Advanced Technology Services (ATS) business has shown notable year-over-year growth, attributed to customer-funded tools. These tools are anticipated to contribute around $80 million for the year.
Piper Sandler projects an annual growth rate of 15% for the ATS segment in the current year and forecasts approximately 9% growth by 2025. The firm expects overall revenue growth in 2025 to stem from increases across all of SkyWater's business segments.
In terms of profitability, Piper Sandler anticipates a gradual improvement in margins from present levels. The increase in margin is expected to be modest due to the impact of the cost of tools on the company's margin profile.
However, the firm's analysis suggests a positive trend for SkyWater, projecting the company to achieve breakeven or better earnings per share (EPS) moving forward, following a favorable EPS report.
The analyst from Piper Sandler expressed confidence in SkyWater's performance and future prospects, stating, "SKYT reported their June quarter which surprised to the upside as the company surpassed expectations on both the top and bottom lines."
The analyst further added that the expected growth in the ATS business and the overall revenue increases in each company segment support a positive outlook for SkyWater.
SkyWater reported record Q1 revenue of $79.6 million for 2024, a 20% increase from the same period last year. The company's Advanced Technology Services (ATS) development revenue hit a new high, mainly driven by demand in aerospace and defense, quantum computing, and biomedical sectors.
However, SkyWater encountered challenges with equipment delivery delays impacting tool revenue and recorded a multimillion-dollar charge for additional costs on a significant aerospace and defense program.
Despite these setbacks, SkyWater anticipates another record revenue quarter in Q2. Analysts from various firms have noted these developments, pointing out the potential impact on profitability due to the mix of tool sales and non-tool revenue volumes.
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