Shares of Ultra Clean Holdings (UCTT) have been strong performers lately, with the stock up 32.8% over the past month. The stock hit a new 52-week high of $30.95 in the previous session. Ultra Clean Holdings has gained 31.3% since the start of the year compared to the 17.1% move for the Zacks Computer and Technology sector and the 21.1% return for the Zacks Electronics – Manufacturing Machinery industry.
What’s Driving the Outperformance?
The stock has an impressive record of positive earnings surprises, as it hasn’t missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on July 29, 2020, Ultra Clean reported EPS of $0.75 versus consensus estimate of $0.45.
For the current fiscal year, Ultra Clean is expected to post earnings of $1.59 per share on $1.17 billion in revenues. This represents a 74.73% change in EPS on a 9.73% change in revenues. For the next fiscal year, the company is expected to earn $1.7 per share on $1.17 billion in revenues. This represents a year-over-year change of 7.23% and 0%, respectively.
Valuation Metrics
Ultra Clean may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company is due for a pullback from this level.
On this front, we can look at the Zacks Style Scores, as these give investors a variety of ways to comb through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. Investors should consider the style scores a valuable tool that can help you to pick the most appropriate Zacks Rank stocks based on their individual investment style.
Ultra Clean has a Value Score of C. The stock’s Growth and Momentum Scores are A and B, respectively, giving the company a VGM Score of A.
In terms of its value breakdown, the stock currently trades at 19.4X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 15.3X versus its peer group’s average of 30.7X. Additionally, the stock has a PEG ratio of 2.43. This isn’t enough to put the company in the top echelon of all stocks we cover from a value perspective.
Zacks Rank
We also need to consider the stock’s Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Ultra Clean currently has a Zacks Rank of #1 (Strong Buy) thanks to favorable earnings estimate revisions from covering analysts.
Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Ultra Clean passes the test. Thus, it seems as though Ultra Clean shares could still be poised for more gains ahead.
How Does Ultra Clean Stack Up to the Competition?
Shares of Ultra Clean have been moving higher, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including Intevac (IVAC), MKS Instruments (MKSI), and Taiwan Semiconductor Manufacturing Company (TSM), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.
The Zacks Industry Rank is in the top 38% of all the industries we have in our universe, so it looks like there are some nice tailwinds for Ultra Clean, even beyond its own solid fundamental situation.
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