Susquehanna Analyst: Advanced Energy Has 40% Upside

In a report published Wednesday, Susquehanna analyst Mehdi Hosseini upgraded the rating on

from Neutral to Positive, while raising the price target from $22 to $35, based on the company's restructuring and execution, which give it greater earnings power. The analyst expressed greater confidence in the company's earnings power, given that the new team continued to execute during the divestiture of the loss making Solar Inverter division. The company has also successfully diversified into the Industrial business, while scaling its Services division. In addition, Advanced Energy is expected to see an increase in its TAM, with its 3D NAND capacity ramping. The analyst also expects the company to drive its FCF margin to at least 20 percent per year over the next few years, driven by its leaner business model. The analyst expects some of the FCF to be used for accretive acquisitions, especially in the Industrial business. Advanced Energy reported stronger than expected June quarter results, the revenue beating the consensus and the estimates, driven by stronger Semi Cap. There was a meaningful change in the revenue mix, with Inverter sales declining 50 percent, year on year, while Semi rose 42 percent, year on year. The Non-GAAP gross margin was higher than the estimate, driven by an increased SCE mix. The Non-GAAP EPS was in-line with the consensus and the midpoint of the guidance but ahead of the estimate. "AE has already started to wind down the Solar Inverter business, a process which should be completed by YE15," analyst Hosseini added.