AXT Trading At Its Highest Levels Since 2012; Northland Raises Price Target

Northland Capital Markets has raised its price target on AXT Inc AXTI shares to $7 from $4.50, saying the stock has ample runway for growth, despite the recent price appreciation.

Shares of AXT are trading at around $5, a level not seen since 2012, as the company showed improved revenue over the past two quarters on growth in its indium phosphide business.

"Despite the stock recent push to $5.00, we believe shares remain undervalued and AXTI will continue to deliver results that are in-line or better for the foreseeable future," analyst Tom Sepenzis wrote in a note.

Indium Phosphide Importance

The company provides Indium Phosphide (InP) and Gallium arsenide, key semiconductor material for telecom carriers and device manufacturers. Indium Phosphide (InP) is essential for optical systems to deliver the expected performance for data center, mobile backhaul, metro and long-haul applications. On the other hand, Gallium arsenide is used to make devices such as integrated circuits, infrared light-emitting diodes, laser diodes, solar cells and optical windows.

"We believe the continued push by carriers worldwide towards 100G and 400G optical infrastructure will help AXTI deliver additional growth moving forward, with 5G cellular delivering significant upside opportunity 2–3 years out," Sepenzis noted.

Related Link: Infant Tech Company Research Frontiers Could Grow Up To Be Worth $6 A Share

In addition to carrier upgrades, Indium Phosphide is in great demand from Alphabet Inc GOOG GOOGL, Amazon.com, Inc. AMZN, Facebook Inc FB, Alibaba Group Holding Ltd BABA and Baidu Inc (ADR) BIDU for their data center upgrades.

Gallium Arsenide

In addition, the June quarter also saw a rebound in its gallium arsenide business and the analyst expects additional growth in the September quarter.

"We have modeled a modest 3.0 percent Q/Q growth, but believe the persistent strength in the Chinese handset market and initial unexpected strength in Apple will help AXTI deliver results that are in-line to better in the current quarter," Sepenzis highlighted.

Valuation, Rating And Expectations

On the valuation front, the analyst said the stock is still trading well below the semiconductor group average of 3.1X forward 12-month revenue at 1.9X. The $7 target reflects a potential upside of 40 percent and forward 12-month P/S multiple of 2.6X, still below the group average of 3.1X.

Therefore, Sepenzis maintains his Outperform rating and recommended investors add to their existing positions or start new ones at these levels.

At time of publication, AXT was down 0.75 percent on the day, trading at $4.95.

Full ratings data available on Benzinga Pro.

Do you have ideas for articles/interviews you'd like to see more of on Benzinga? Please email feedback@benzinga.com with your best article ideas. One person will be randomly selected to win a $20 Amazon gift card!