Tuesday, Oppenheimer maintained its Outperform rating on Onto Innovation Inc. (NYSE: NYSE:ONTO) shares and increased the price target to $275 from $260. The firm's analyst visited Onto's headquarters for the PACE facility ribbon-cutting event, which bolstered confidence in the long-term demand for Onto's Dragonfly systems. These systems, used in advanced packaging, are expected to benefit from the growing artificial intelligence (AI) market.
The analyst's optimism stems from the anticipated revenue and operating income growth for Onto Innovation. The 2025 revenue estimate was raised by 1% to $1.19 billion, positioning it 3% above the market consensus.
Similarly, the 2025 operating income forecast was also lifted by 1% to $382.5 million, which would translate to a 32.2% margin. This figure is conservatively set below Onto's long-term goal of a 33-34% margin at approximately $1.2 billion revenue, yet it stands 9% higher than the consensus.
Despite the positive long-term outlook, the analyst chose to maintain the 2024 estimates in alignment with the market consensus. This decision reflects the near-term challenges Onto faces, such as customer bottlenecks due to spatial constraints and uncertain macroeconomic factors that could impact traditional end-markets outside of AI.
Onto Innovation is highlighted as the top pick by the analyst, citing the raised price target as a result of the higher revenue and operating income estimates. The new target is based on a 32.0x enterprise value to EBITDA (earnings before interest, taxes, depreciation, and amortization) multiple, which is an increase from the previous multiple of 31.0x. This adjustment reflects the peak valuation level reached in July.
In other recent news, Onto Innovation has seen a series of significant developments. The company reported a 15% year-over-year increase in revenues, a key indicator of its financial health. Analyst firms have also shown confidence in Onto, with Stifel maintaining a Buy rating and Needham upgrading the company from Hold to Buy.
Benchmark also upgraded the price target for Onto Innovation from $180 to $230, maintaining a Buy rating due to a strong sales outlook. They project a 23% year-over-year growth in earnings to $5.98 per diluted share for 2025.
Onto Innovation has also announced the launch of its Packaging (NYSE:PKG) Applications Center of Excellence (PACE) in Wilmington, Massachusetts. This center is designed to foster innovation in panel-level packaging (PLP), a crucial component of advanced AI and memory packages. The company has also appointed Dr. Stephen Schwartz, a veteran in high technology companies, to its board of directors.
Moreover, Oppenheimer initiated coverage on Onto Innovation, highlighting the company's growth prospects and its role as a key enabler in the artificial intelligence industry. The firm also pointed out Onto Innovation's relatively low-risk profile regarding its business in China, which accounts for only 10% of its revenue. This is in contrast with other larger wafer fab equipment makers that have closer to 40% revenue exposure in China.
Finally, Onto Innovation has launched a new suite of products, including the JetStep X500 lithography system and the Firefly G3 inspection system, designed to support the industry's shift to glass core panels for advanced IC substrates and panel-level packaging. These are the latest developments in Onto Innovation's ongoing efforts to adapt and innovate in the semiconductor industry.
InvestingPro Insights
Recent data from InvestingPro adds depth to Oppenheimer's optimistic outlook on Onto Innovation Inc. (NYSE: ONTO). The company's market capitalization stands at $10.25 billion, reflecting its significant presence in the semiconductor industry. Onto's P/E ratio of 60.76 indicates that investors are willing to pay a premium for its shares, likely due to the growth potential in AI-related technologies highlighted by Oppenheimer.
InvestingPro Tips reveal that Onto holds more cash than debt on its balance sheet, which aligns with the analyst's confidence in the company's financial health and ability to invest in growth initiatives like the PACE facility. Additionally, the company has been profitable over the last twelve months, with a strong return over the last year, supporting Oppenheimer's positive stance on Onto's future performance.
It is worth noting that Onto's revenue for the last twelve months as of Q2 2023 was $897.21 million, with a quarterly revenue growth of 27.1% in Q2 2023. This growth trajectory supports Oppenheimer's increased revenue estimates for 2025. The company's gross profit margin of 51.33% and operating income margin of 16.79% for the same period suggest a solid foundation for the projected margin improvements.
For investors seeking a more comprehensive analysis, InvestingPro offers 12 additional tips for Onto Innovation, providing a deeper understanding of the company's financial position and market performance.
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