Cohu Up 23% in Three Days on Q4 Guidance Raise and New Financial Model; Needham Hikes PT

Shares of semiconductor company Cohu have surged 23% over the last three days after it revised its fiscal fourth quarter 2020 guidance to the upside and provided a new financial model.

Cohu (COHU) is anticipating record orders in Q4 thanks to RF tester share gains and accelerating automotive segment demand. Revenue is expected to land between $195-$200 million, which would reflect a 31% sequential increase at the mid-point compared to the third quarter.

According to management, the strong momentum should persist, with the company predicting that first quarter 2021 revenue will be about 5% higher than the updated fourth quarter guidance. Additionally, Cohu has trimmed its term loan B debt associated with the Xcerra acquisition in October 2018 by $20.9 million fourth quarter-to-date.

“We are encouraged by our fourth quarter order momentum, continued ramp of our RF test solutions, accelerating automotive segment demand, and our drive to further improve operational efficiencies. With these business trends and our team’s outstanding execution, we are well positioned for growth in 2021,” Cohu’s President and CEO Luis Müller noted.

Separately, during its Analyst Day on December 2, Cohu provided a new financial model. By segment, off the 2020 base and over three to five years, Cohu will work to achieve total revenue of $940 million with a 14% CAGR as well as Semi Test revenue of $270 million with a 17% CAGR. (See Cohu stock analysis on TipRanks)

All of this prompted Needham’s Quinn Bolton to hike the price target up from $30 to $50 (43% upside potential) and reiterate a Buy rating on December 3. The price target boost reflects Needham’s largest price target increase in 2020.

“We believe the company will enjoy continued growth in 2022-2023, as 5G and automotive, two main drivers of Cohu’s demand, are expected to be multi-year, secular trends… We urge investors who are still on the sidelines to buy Cohu stock,” Bolton opined. The rest of the Street agrees, with Cohu boasting a Strong Buy analyst consensus based on 6 unanimous Buy ratings. At $41.67, the average price target suggests 19% upside potential.