Stifel lowers Ichor stock price target to $25 ahead of Q2 earnings

Stifel and DA Davidson have both lowered their price targets for Ichor Holdings (ICHR) to $25 and $45 respectively, while maintaining Buy ratings, ahead of the company's Q2 earnings report. This follows a Q1 earnings miss and analyst expectations for Q2 EPS to be at the lower end of guidance due to ongoing gross margin pressures from internal component supply issues. Despite projections for flat revenue in the second half of 2023 due to plateauing OEM shipments, analysts remain optimistic about ICHR's etch and deposition business outgrowing the market next year, even amid broader semiconductor market uncertainties.

Analysis

Analyst sentiment on Ichor Holdings (ICHR) has turned more cautious ahead of its Q2 earnings release, with both Stifel and DA Davidson reducing their price targets to $25 and $45, respectively. This follows a reported Q1 earnings miss, where EPS of $0.12 fell short of the $0.24 consensus. The core issue pressuring the stock is deteriorating gross margin, which Stifel projects will be 13.0% in Q2, at the low end of company guidance, attributed to "learning curve issues" as Ichor ramps up its internal component supply. This operational challenge has already led seven analysts to revise earnings expectations downward. For the second half of 2023, Stifel anticipates flat revenue for Ichor, mirroring an expected plateau in semiconductor equipment OEM shipments. Despite maintaining 'Buy' ratings, analysts cite broader headwinds including tariff uncertainties and the overall semiconductor market environment. The long-term thesis remains cautiously optimistic, predicated on Ichor's ability to leverage its etch and deposition business tied to Lam Research and Applied Materials to outgrow the market, with InvestingPro data showing a 12% revenue growth projection for FY2025.

Key Decisions for Investors

• Investors should scrutinize the upcoming Q2 earnings report for any tangible improvement in gross margins, as ongoing pressures from the internal component sourcing transition represent the most significant near-term risk.
• While the maintained 'Buy' ratings from Stifel and DA Davidson suggest potential long-term value, with the current price well below new targets, this opportunity is contingent on the company successfully navigating its operational challenges and broader semiconductor market headwinds.
• The bull case for Ichor is heavily dependent on its ability to outgrow the market via its key customer relationships with Lam Research and Applied Materials; therefore, any forward-looking commentary on market share within the etch and deposition segments is a critical catalyst to monitor.
• Consider the stock's performance in the context of the broader semiconductor equipment cycle, as analysts expect near-term revenue to plateau, suggesting limited top-line growth until OEM shipments reaccelerate.