August 31, 2018

ICHR – While management’s concerns about M&A, margins, and capacity suggest near-term upside may be limited, overly bearish market expectations support longer-term upside


  • Ichor Holdings, Ltd. (ICHR:USA)currently trades well below corporate averages relative to UAFRS-based (Uniform) Earnings, with an 8.9x Uniform P/E, implying bearish expectations for the firm. As such, while management’s negative sentiment suggests the potential for near-term headwinds, longer-term upside remains warranted
  • Specifically, management may have concerns about their ability to continue to find additional M&A targets that are value accretive. Additionally, they may be concerned about their investors’ perception of the semiconductor business cycle, and may lack confidence in their ability to fully leverage their model to meet their incremental margin goal. Finally, they may be exaggerating the value of additional capacity in Malaysia, and their success related to the integration of Talon and Cal-Weld
  • However, market expectations are for Uniform ROA to fall to levels not seen since the firm has gone public, implying longer-term upside remains justified should the firm be able to simply maintain Uniform ROA at or near current levels
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