Stock To Watch In 2017 - Ichor Holdings, Ltd. (ICHR)

(RTTNews) - We believe this stock is well-positioned for at least 15% upside from current $23 levels. The stock featured on our premium product Short-Term Investor on April 25 at an opening price of $19.5, and on June 9 touched an intra-day high of $29.73, returning a gain of 52.4% to investors. It is now at an attractive price point again.

Ichor Holdings, Ltd. (ICHR) supplies gas panel delivery systems and chemical delivery subsystems for the semiconductor capital equipment industry. The semiconductor supply chain depends on critical subsystems, which is Ichor's domain of expertise.

New semiconductor processes, like Multiple Patterning, FinFET, 3D NAND and Advanced packaging require more fluid delivery. Ichor says its platforms are critical to etch, Chemical Mechanical Planarization (CMP) and deposition steps that support these technology inflections.

Citing a Gartner report, Ichor said in a May investor presentation that key processes with fluid delivery were growing faster than the overall Wafer Fab Equipment (WFE) market. While total WFE is expected to grow at an 8% CAGR (Compound Annual Growth Rate) from $28.99 billion in 2013 to $42.43 billion in 2018, Gas delivery processes -- Dry Etch and CVD or Chemical Vapour Deposition --are expected to grow at a CAGR of 17% and 14%, respectively.

Last year, Ichor acquired Ajax Custom Manufacturing of Union City, a plastic component supplier to major customers in the semiconductor capital equipment market. At the time, Ichor said the addition of Ajax will give it a great foundation for continued growth in semiconductor plastics, while opening up the opportunity for pursuing additional opportunities in liquid delivery processes.

Ichor sees the opportunity for market share gain in the chemical delivery systems market with new chemical delivery capabilities. The CMP chemical delivery process is expected to grow at a CAGR of 14% from 2013 to 2018, also outpacing the growth in the WFE market.

The company's revenue growth has surpassed its customers and key competitor Ultra Clean Holdings Inc. (UCTT). From 2013 to 2016, Ichor has grown revenues at a CAGR of 23%, vs. 10% growth for customers and 8% growth for UCTT.

From $249 million in 2014, Ichor has grown revenues to $291 million in 2015 and $406 million in 2016, representing a 28% CAGR. But, during the same period adjusted Net income has grown at a whopping 64% CAGR, from $11.7 million in 2014 to $20.2 million in 2015 and $31.6 million in 2016.

Yet another definite plus is Ichor's ability to scale its business and respond efficiently to increases in demand, as customers expand with acquisitions.

The company says its low capex requirements and variable cost structure constitute a capital efficient, and leveraged earnings business model, respectively. Capex has declined from 1.4% of revenues in 2014 to 0.5% in 2015 and 1.1% in 2016, while GAAP operating expenses have declined from 13.2% of revenues in 2014 to 12.4% in 2015 and 10.2% in 2016.

For the second quarter of 2017, Ichor expects revenue $152 million to $162 million, and adjusted earnings per share of $0.57 to $0.63. At the time when the company released its guidance, analysts were modeling revenues of $138.8 million and EPS of $0.52. Current Street estimates have been revised up to EPS of $0.6 and revenues of $157.3 million, reflecting the company's guidance.

The stock currently trades at a forward P/E of 11.2X vs. competitor UCTT's 11.9X.