Industry softness has led to a target price reduction for Photon Control (Photon Control Stock Quote, Chart TSX:PHO) from Echelon Wealth Partners analyst Amr Ezzat, who now calls PHO a “Buy” with a target of $2.00 (previously $2.50), representing a projected return of 37.9 per cent at the time of publication.

Precision measurement solutions company Photon Control will release its fourth quarter fiscal 2018 results on March 21, with Ezzat saying that the company’s third quarter showed good cost control and significant free cash flow generation within a soft market, although management projections for Q4 fell short of expectations.

“With continued softness in the wafer fabrication equipment industry, we are lowering our estimates for Photon Control ahead of the Company’s Q418 results,” says Ezzat in a client update Monday. ‘Recent quarterly results and commentary from Lam Research, Tokyo Electron, and Applied Materials point to continued weakness in the industry with a 2019 outlook expected to be down mid-teens relative to 2018.”

Ezzat has lowered his projections accordingly, calling for 2019 revenue and EBITDA of $38.3 million and $10.7 million (previously $42.6 million and $13.1 million) and 2020 revenue and EBITDA of $44.2 million and $15.1 million (previously $49.2 million and $17.7 million).

Ezzat notes that the stock is up 27.2 per cent since early January when he confirmed PHO as one of Echelon’s Top Picks.

“While the longer-than-anticipated softness is disappointing, we believe Photon presents exceptional risk-reward characteristics for long-term investors,” he says.

Photon Control announced in December the departure of CEO Scott Edmonds, which while likely to result in short-term weakness, the move does not impact Ezzat’s long-term thesis for PHO, who says that the company, “is in good hands and more importantly has enough bench strength both on the executive level and on the BoD to smoothly manage the transition.”