Stifel: Encouraging Nanometrics Thesis 'Intact,' But Stock's Valuation Is Full

Nanometrics Incorporated (NASDAQ: NANO) remains well-positioned to take advantage of encouraging market trends, according to Stifel. But the fundamental prospects for the semiconductor supplier take a back seat to the stock's valuation, the sell-side firm said in a downgrade note. 

The Analyst

Stifel's Patrick Ho downgraded Nanometrics from Buy to Hold and lifted the price target from $35 to $40.

The Thesis

Nanometrics' market position and opportunities within the metrology market remain unchanged, Ho said in the Sunday downgrade note. The company can still take full advantage of industrywide memory spending in both DRAM and 3D NAND and within the foundry and logic segment, the analyst said. (See Ho's track record here.)

A downgrade of Nanometric's stock is warranted due to valuation concerns, the analyst said: shares have outperformed not only  peers, but the overall market, and there is little reason to believe the stock's momentum can drive shares north of the $40 level, he said. 

The analyst's revised $40 price target is based on a slightly higher multiple of 14x versus a prior multiple of 12x on a 2019 EPS estimate of $2.50 plus another $5 in net cash.

Price Action

Nanometrics shares were up 1.76 percent at the time of publication Tuesday afternoon.

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