Versum Materials' Earnings Growth May Trail Peers, Analyst Says In Downgrade

Versum Materials Inc VSM, a manufacturer of electronic chemicals, could benefit less from several positive industry growth drivers in 2018, resulting in lagging relative stock performance, according to Loop Capital Markets. 

The Analyst

Loop Capital Markets analyst Chris Kapsch downgraded shares of Versum Materials from Buy to Hold and reduced the price target from $47 to $42.

The Thesis

Versum's earnings growth may trail peers in 2018 and possibly into 2019, analyst Kapsch said in a Thursday morning note. (See the analyst's track record here.) 

Despite positive expectations for the electronics chemical space, Kapsch said Versum could benefit less.

The company has indicated capacity constraints in NF3, its single largest product, as it is a key supplier of materials consumed during the migration of production by NAND memory chipmakers from 2-D to 3-D architectures, the analyst said. 

"We also believe VSM's position in WF6 could be compromised for technical reasons, once NAND producers shift to next-generation 128- and possibly 96-layer chip architectures," Kapsch said. 

The analyst projects that growth and margin improvement in Versum's delivery systems and services segment will be subdued in 2019 due to flattening semiconductor equipment spending.

Loop's reduced price target is based on lowered 2019 projections and a lower multiple assumption.

The Price Action

Versum Materials shares are up about 40 percent over the past year.

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