After a 30% Post-Earnings Pop, Is Amkor Now Getting Too Far Ahead of Itself?

Technology

Published: October 29, 2019 1:55 pm

Last Updated: January 30, 2020 1:53 pm

When the market hits all-time highs, investors and traders often take very different approaches, despite having some of the same ultimate goals. So what happens when investors see a post-earnings reaction take a stock up 30% at the same time the S&P 500 hits an all-time high? That’s the conundrum for investors in Amkor Technology Inc. (NASDAQ: AMKR) as its shares were trading up over 30% on an exponential volume spike.

This stock already was trending higher into a breakout pattern, but this now goes above and beyond the norm.

Amkor’s earnings came to $0.23 per share, beating the consensus estimate of $0.08 per share from Refinitiv and the $0.07 per share estimate from Zacks. What may come into play here is that Amkor is a very thinly followed stock with fewer than analysts covering it, so “beating estimates” has to all be kept in relative terms against the “consensus.”

Shares of the chip packaging and test-services provider had been lower for much of the year, and the third quarter “beat” is against earnings of $0.24 per share from the same quarter in 2018, when adjusting for one-time and nonrecurring items. Just last quarter, it had been anticipated that Amkor would have a slight loss in its quarterly report, which came in narrower than expectations.

Despite a gain of more than 30%, Amkor’s rebound already had been outperforming the chip sector and the broad market in 2019. That’s what a 120% or so gain year to date looks like, even for just a $3.5 billion market cap and even for a thinly covered stock like this.

In response to Amkor’s report, Credit Suisse raised the shares to Outperform from Neutral and raised its target price to $15.00 from $8.20. That is nearly a 100% price target raise from analyst Randy Abrams, even though the prior close ahead of earnings at $11.08 was above the prior target price.

As of September 30, 2019, Amkor’s cash and cash equivalents came to right at $600 million, versus total debt of about $1.3 billion.

Steve Kelley, Amkor’s president and chief executive officer, said of the quarter and looking ahead:

Sequential revenue growth of 21% drove financial results above the high end of guidance. Demand was particularly strong for our advanced packaging technologies. … We expect revenue of about $1.1 billion in the fourth quarter, reflecting continued healthy demand for Amkor’s advanced packages.

Megan Faust, Amkor’s corporate vice president and chief financial officer, said of the results and looking ahead:

Operating margin, earnings per share and EBITDA all showed meaningful sequential improvement in the third quarter. Based on our solid business outlook for the fourth quarter, we expect to deliver a fifth consecutive year of positive free cash flow.

Amkor’s guidance for the fourth quarter of is shown below (with comparisons to the fourth quarter of 2018):

Net sales of $1.05 billion to $1.14 billion (versus $1.081 billion)
Gross margin of 15% to 18%
Net income of $26 million to $78 million, or $0.11 to $0.32 per diluted share (versus $0.12 per share actual)
Full-year 2019 capital expenditures of approximately $475 million.

It might seem easy to claim that a short squeeze was exaggerating the move higher, but Amkor’s October 15, 2019, short interest was just 2.4 million shares, and its short interest had been coming generally lower over the past year.

Shortly after 1:30 Eastern Time, Amkor shares were up over 31% at $14.60, and the new 52-week trading range is $5.74 to $14.81. The 5.5 million shares that had already traded on Tuesday, with time to spare, was also about six times a normal trading day’s volume.

With such low analyst coverage, it’s hard to go out for further ideas and advice here. That said, the stock had trended higher in the past month with a solid 20% or so gain ahead of earnings, but this additional 31% pop just takes the cake.