6 Reasons Why Cohu Is 'Poised For An Imminent Breakout'

Semiconductor equipment supplier Cohu, Inc. COHU is a lesser known name with an undervalued stock that should be bought by investors for six reasons, according to DA Davidson.

The Analyst

DA Davidson's Thomas Diffely initiated coverage of Cohu with a Buy rating and $30 price target (12-18 months) and a five-year price target of $50.

The Thesis

The bullish case for buying Cohu is six-fold, Diffely said in the initiation note.

1. The company's core business of providing semiconductor test equipment should benefit from the industry's move towards increasingly complex chips which require more stringent security and reliability requirements.
2. Cohu boasts exposure to the fastest growing segments of the chip market, including the auto market, Internet of Things market and mobility market.
3. Cohu's management was active over the past few years in growing its productivity, thermal control, and inspection capabilities which will all become increasingly important for the next generation of chips.
4. Organic growth alone will help the company achieve $500 million in revenue and $2.50 of earnings power in the coming years.
5. The pending acquisition of Xcerra should close in the coming weeks and generate near-term cost synergies with minimal product overlap and expand into a $1 billion revenue opportunity with $3.50 of earnings power in a few years.
6. Cohu's stock is trading at 8 times 2019 EPS (net of cash), which is a discount to the broader group at nearly 10 times.

Price Action

Shares of Cohu were trading higher by 4.9 percent to $22.83 at time of publication.

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