Cohu getting some ink from Barrons regarding small caps to buy for value:
We screened for companies in the S&P 600, a higher-quality small-cap index, whose earnings per share are expected by analysts to grow above 17% a year in 2025 and 2026, higher than the average rate for the stocks in the index. Of those faster-growers, we looked for the ones that have beaten profit estimates in at least seven of the past eight quarters. The idea is that the selected stocks have potential for larger gains and seem likely to reach that potential.
Stocks on the screen include Albany International, a textile processor, Barnes Group, an industrial and aerospace machinery maker, and AMN Healthcare, a nursing and staffing provider in the healthcare space. There's also Owens & Minor, a medical-products maker, golf gear maker Topgolf Callaway Brands, and apparel and workwear retailer Boot Barn. They're all expected to see their earnings grow between 19% and 34% annually from the end of this year through 2026, according to FactSet.
Another is the $1.6 billion Cohu, which makes testing equipment for semiconductor manufacturers. Things haven't been perfect for the company recently. A large chunk of its revenue comes from a couple of chip makers who sell to manufacturers, including auto makers, and those end markets are suffering this year. That's reflected in Cohu's numbers: Second-quarter earnings are expected to come in at a loss of two cents a share on sales of $105.1 million, down 38% from $168.9 million.
Expectations are high for 2025 and 2026 -- and for good reason. For starters, a rebound in Cohu's key customers could set up easy comparisons for next year's sales, which are expected to grow 37% to $606 million, and then 18% to $ 718 million in 2026. Many of its customers also have to make artificial-intelligence-capable chips for consumer electronics, cars, and industrial products, and they will have to buy more testing machines, management explained on its first-quarter earnings call in May.
The company also noted it has been winning new customers, a trend that can continue as it looks to expand into the computing and data-center space. The result is that earnings could hit $3.23 a share by 2026, up from an expected 21 cents a share this year. While that might seem extreme, Cohu hasn't missed a quarterly forecast since the end of 2019.
These profits, should they materialize, should send the stock soaring. Shares, which have dropped about 3% this year, trade at about 10 times expected 2026 earnings, below the S&P 600's 15 times. If the stock can earn a market multiple by the end of the year, they could trade at $48 by the end of next year, up 45% from a recent $33.
As they say, good things come in small packages.
Write to Jacob Sonenshine at jacob.sonenshine@barrons.com |
