Photon Control is a buy, Paradigm Capital says

Expect a strong year ahead from Photon Control (Photon Control Stock Quote, Chart, News: TSXV:PHO), says Daniel Kim, analyst with Paradigm Capital, who in an update to clients on Friday maintained his “Buy” rating and one-year target of $2.60.

Optical measurement technology company Photon Control released its Q4 and year ended December 31, 2017, financial results on Thursday, boasting fourth quarter revenue of $11.0 million, representing a 22 per cent year-over-year increase, and full-year revenue of $43.8 million, an increase of 36 per cent over 2016.

“We are pleased to deliver record revenue and Adjusted EBITDA for the year,” said Scott Edmonds, Photon’s CEO, in a press release. “Our fourth quarter and second half results were slightly above our forecasted levels, reflecting the robust semiconductor industry, increased customer confidence in Photon Control, and early results from investments made in engineering and sales and marketing.”

Revenue, EBITDA and EPS (excluding charges) for Q4 came in at $11 million, $2.9 million and $0.02, respectively, which were ahead of Kim’s estimates on revenue but in line on profitability at $10.5 million, $3.0 million and $0.02. (The street consensus was $12 million, $3.8 million and $0.03, respectively.)

“PHO has a long track record and strong reputation in its core end markets,” says Kim. “A reconstituted board and management team will leverage its collective deep industry experience and long-standing relationships with key customers to drive accelerated growth, particularly within the semiconductor capital equipment market, as it undergoes a massive investment cycle.”

Photon’s backlog has been trending up nicely, the analyst says, and the company’s cash increased to $34.3 million from $27.0 million last quarter, with no debt, leaving PHO with plenty of resources for potential acquisitions and reinvestment.

“Photon Control’s strong Q4 results and bullish outlook give us confidence in our numbers going forward,” says Kim. “Looking to 2018, the company expects to grow its footprint with existing customers, deliver new socket wins with current and new OEM customers, and pursue new market opportunities. Relative to its peers, PHO does not trade at much of a discount, but nor is it expensive.”

Kim leaves his estimates for 2018 and 2019 unchanged, saying that PHO will generate revenue and EBITDA of $49.7 million and $16.4 million, respectively, in 2018 and revenue and EBITDA of $57.1 million and $20.7 million, respectively, in 2019.

The analyst maintains his “Buy” recommendation and one-year target price of $2.60, representing a 50 per cent potential return on investment at the time of publication.