NVMI Stock Forecast : An Innovative Model Supporting a Promising Future

This NVMI Stock Forecast article was written by Eva Zagury, a Financial analyst at I Know First.

NVMI stock forecast
Source : Novami.com

“ Nova continued to demonstrate solid execution through the first quarter of 2019, with revenue within the guidance range and EPS exceeding guidance. […] Looking forward, we are confident in our strategy and expect that our balanced market exposure, combined with our newly awaited products, will further strengthen the company’s fundamentals and will support our long-term growth plans as market conditions improve beyond the interim industry volatility. ”

Eitan Oppenhaim, President and CEO of Nova in the latest press release.

Summary

  • Inspite of a 10% decrease for the first quarter of 2019, NVMI stock forecast topped consensus revenue estimates showing a surprise of 27.59%.
  • Growing diversification in revenue mix, customer base and technology, as well as an massive R&D investment represent the two main ingredients for Nova’s short-term earning surprise.
  • The market high volatility makes short-term visibility hard. Magnitude and direction of estimate revisions could change following the next earnings report scheduled for next month.
  • Still, Nova Measuring Instrument is well positioned to benefit from a long-term growth, given it widened exposure to multiple segments, customers geographies and attractive differentiated portfolio.

Business Overview

Nova Measuring Instruments is the leading provider of innovative metrology devices for advanced process control used in semiconductor manufacturing. Nova’s product portfolio provides its customers with deep insight into the development and production of 2 types of metrology services: memory and logic. While logic chips work as the “brain” of an electronic device, performing functions using mathematical operations, memory chips store data. These solutions are based on optical Scatterometry, x-ray photoelectron spectroscopy (XPS), x-ray fluorescence (XRF), scatterometry modeling software and high-performance computing that combine machine learning within both integrated and standalone configurations, enabling its customers to improve performance, enhance product yields and accelerate time to market. Nova acts as a partner to semiconductor manufacturers from its offices around the world. 

Following the market trends, Nova Measuring Instrument Ltd. has known a 10% decrease in revenues compared to the fourth quarter of 2018. The company’s shares underperformed the Semiconductor industry (NASDAQ : SOXX) which returned 3.4% over the past year (see chart bellow). This downgrade is to blame on a global decline in the semiconductor industry, followed by shifts in world affairs, including the trade war, Brexit and weak smartphone demand. U.S. data center operators that had bought large amounts of chips through 2018 began reducing their stockpiles since the U.S. in May essentially banned exports to Huawei Technologies, prompting some chipmakers to suspend transactions with the Chinese telecommunications equipment producer.

NVMI stock forecast
NMVI vs SOXX Shares YTD (source : yahoofinance.com)

Yet, Nova recently showed better-than-expected performances: over the last four quarters, the company topped consensus revenue estimates four times. Indeed, Q1 2019 reports showed an earnings surprise of 27.59%. Nova Measuring Instruments (NVMI) came out with quarterly earnings of $0.37 per share, beating the Zacks Consensus Estimate of $0.29 per share.

Nova Quaterly Results

A Winning Business Model

This strong outcome is the result of the efficient business model built on growing diversification in revenue mix, customer base and technology offering. In a fundamentally volatile market, the startup efforts put in differentiating it portfolio and increasing it value in larger addressable markets represented a successful strategy due to a better repartition of the risks. This performance was also supported by a balanced customer mix, which included five large customers, three more than in 2014. Along with these results, memory and foundry contributed evenly (50% each) to the overall product revenue in the quarter sweeping of reliance on the logic segment back in 2014.

Regional Mix (source : NVMI-IR-19)
NVMI stock forecast
Customer Diversification (source : NVMI-IR-19)

Based on this balanced mix, we can expect that once the market stabilized, Nova’s stronger position will provide the company with an advantage in several segments and support long-term growth plans.

Innovation and Diversification Serving Enthusiastic Earning Expectations

NVMI stock forecast

One of the successful highlights from the first quarter is the selection of VeraFlex X-ray in-line materials metrology solution by a global leading memory customer. Besides, Nova (Nasdaq: NVMI) announced on July, 8th the launch of Nova PRIZM™, its newest standalone Optical CD system targeted at the most complex device manufacturing across the frontend semiconductor segments. The new platform constitues a lead over the industry’s advanced dimensional metrology portfolio.

The company’s uniqueness in predicting CD and electrical values from an inline measurement using machine learning engine represents a formidable lead over its competitors and may be supporting share gains with multiple customers in the next months.

This win may ease more as the customer continues to expand capacity and applications globally. I anticipate a medium-term growth as 5G wireless technology and next-generation automobiles take root. Nova hangs on her leading innovation strategy by focusing on two additional growth engines in 2019. 

The first is to continue developing a machine learning software suite, which would significantly enhance metrology capabilities and provides adaptive solutions. These solutions are gaining more interactions with the company’s customers and are recognized by the industry as a breakthrough technology for improving yields and time-to-solution. 

The second is to continue aggressively prototyping their two main new technologies: X-Ray optical convolution and advanced SW capabilities. Both technologies reveal unmet solution for both dimensional and materials metrology and may generate initial revenues from this new technologies in the first half of 2020. The average earning estimate is settled at $1.88 for the next year, that is, 0,50 points better than previous year.

The sustainability of the stock’s immediate price movement based on the recently-released numbers and future earnings expectations will mostly depend on management’s reactivity to the highly volatile market of metrology solutions. In a fast changing world, the most advanced technologies (eg : AR/VR, autonomous vehicles, Cryptocurrencies, etc.) serve as multi-catalysts for Semiconductors demand since they require more power, data storage and data rate. Materials’ parameters will become increasingly important, while new generation devices will develop along with demand for data management & computing power. What’s more, the rapid increase in the manufacturing of consumer electronic devices has also resulted in a surge in global sales of smartphones and smart devices, which employ a lot of IC’s integrated together; which is another driving factor for the growth of semiconductor.

NVMI stock forecast
Demand for Semi-conductors will Triple in 2025 (source : NVMI-IR-19)

Short-term Uncertainty, Long-term Optimism

Although the company is not immune to the market volatility and a current low visibility, we expect that given a widened exposure to multiple segments, customers and geographies, combined with the attraction their differentiated portfolio is gaining in the market lately, Nova Measuring Instrument is well positioned to benefit from a long-term growth potential and is likely to be a bullish long-term investment. The key advantage of metrology software is that the measurements are conducted in the production process itself rather than in measuring rooms, which is boosting the demand for metrology in modern plants and production lines leaving great hopes of long-term growth for the company.

NVMI stock forecast
NVMI Stock Forecast, Long-Term Price Predictions for Year 2020

In a short-term approach, while Nova Measuring Instruments has outperformed the market so far this year, there is no clear path for what’s next for the stock. One reliable measure is the company’s earnings outlook and how these expectations have changed lately. Ahead of the earnings release, the estimate revisions trend for Nova Measuring Instruments was mixed. While the magnitude and direction of estimate revisions could change following the company’s next earnings report on August 7th, the current status translates into a Hold for the stock. Empirical research shows a strong correlation between near-term stock movements and trends in earnings estimate revisions. So, the shares are expected to perform in line with the market in the near future. 

It will be interesting to see how estimates for the coming quarters and current fiscal year change in the days ahead. The current consensus EPS estimate is $0.34 on $55.50 million in revenues for the coming quarter and $1.65 on $237 million in revenues for the current fiscal year.

Conclusion

NVMI is currently trading at $25.02 which represents a 13% drawdown from it high at $28.72 last May, following the Semiconductor market trends. Metrology Market in Asia-Pacific is expected to grow at CAGR of 10.60% to 485.85 million by 2027.  An increase in semiconductor R&D spending to make the advanced technology nodes commercially viable will drive the sales globally, lifting up growth estimates of the company to 36.20% for the next year.

I have a bullish outlook for NVMI stock forecast as it seems to have taken the right turn: it shares have been assigned an average rating of “Buy” from six brokerages that are covering the firm and the average 1-year price objective is $32.67. I would also give NVMI a buy rating regarding it expanded technology base driving TAM increase, diversified revenue stream driving wider market exposure, in addition to a solid operational model to support investment.

Current Bullish I Know First NVMI Stock Forecast

NVMI stock forecast


This is the bullish I Know First NVMI forecast for the next year. It currently has a positive outlook with a signal strength of 515.41 and predictability indicator of 0.8.

NVMI stock forecast

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Please note-for trading decisions use the most recent forecast.