Nanometrics: The Semiconductor Stock That Could More Than Double By 2020

In a report published Monday, DA Davidson analyst Thomas Diffely upgraded the rating on

from Neutral to Buy, while raising the price target from $18 to $21. Analyst Thomas Diffely said that although the view on the company's growth prospects had been bullish, a premium valuation and rising expenses had "kept us on the sidelines." Nanometrics now appeared poised for a "multi-year earnings ramp," boosted by share gains and a completed investment cycle. This, along with the recent downturn in the company's shares "presents a compelling risk-reward profile," Diffely wrote, while adding that the multi-year EPS expansion should drive outperformance as well as more than 50 percent stock appreciation. In the report DA Davidson noted, "NANO's business has historically been highly dependent on spending patterns from three customers: Intel, Samsung and Hynix (combined, they represented more than 60% of total revenue over the last five years). After several years of investment, efforts to diversify the customer base are beginning to bear fruit with three new key customers: Foundry player TSMC and Memory players Micron and Toshiba (3D NAND) that were nonexistent in the prior cycle." Diffely added that significant share gains were driving near-term stability. New customers and "a return in spending from old customers" positioned Nanometrics for "meaningful, above industry average, top line growth over the next several years."