2023-08-08 14:12:44 ET
Summary
- Vicor Corp. has doubled off its recent lows, but the stock's valuation now appears to be stretched.
- The company beat top and bottom line expectations within its second quarter earnings report, but its order backlog shrunk substantially as customers await a new product launch.
- Insiders have been consistent sellers of the shares in 2023, analyst coverage is sparse, and the shares appear overbought by key valuation metrics.
- Why I am making a new short bet against Vicor Corp. as outlined in the paragraphs below.
"Most forms of energy are invisible ." - Steven Magee
Back in March of this year, there was a prescient and bullish article on Vicor Corporation ( VICR ) after the shares had fallen 75% to around $40.00 a share. It was a great call, as the stock quickly doubled. However, at these levels, valuation seems " stretched ." Still more upside or time to take profits in VICR? An analysis follows below.
Company Overview:
Vicor Corp. is based just outside of Boston in Andover, MA. The company manufactures and markets modular power components and power systems for converting electrical power. Vicor offers custom power systems solutions and a range of brick-format DC-DC converters as well as complementary components.
Vicor serves OEMs and contract manufacturers primarily and is well-represented across various sectors of the economy including aerospace, defense, telecom, and industrial automation to name a few. The stock currently trades at around $77.00 a share and sports an approximate market capitalization of $3.4 billion.
Company Website
Second Quarter Results:
The company posted solid second quarter numbers on July 25th. GAAP earnings per share came in at 38 cents, double the consensus. Revenues rose 4.5% on a year-over-year basis to $106.75 million, just over $8 million over expectations. This was also a 9.1% sequential increase from first quarter sales of $97.8 million. Earnings were helped by capital expenditures, which fell to $8.5 million, compared to $14.2 million in the same period a year ago.
Company Website
Order backlog shrunk by 47% from 2Q2022 to $217.3 million. Backlog was also down 19.9% sequentially from the first quarter of this year. Management attributed that to customers waiting for Vicor's production release of its AI platform with a Lateral Power Distribution Network ("PDN") using a 4G ChiP-set. The new product is expected to result in a 10% improvement in system efficiency. The launch is scheduled for launch sometime in the fourth quarter of this year.
Analyst Commentary & Balance Sheet:
Since second quarter results were posted, both Needham ($75 price target) and Craig-Hallum have said positive things about Vicor. Despite being of midcap size, Vicor Corp gets little coverage on Wall Street, and those are the only two analyst firms I can find that have chimed in on the company so far this year.
Approximately 14% of the outstanding float in the shares is currently held short. Several insiders have been frequent and consistent sellers of the stock here in 2023. Collectively, they have sold roughly $3 million worth of equity so far this year.
The company ended the second quarter with just under $205 million in cash and marketable securities after the company had a net income of $17.1 million for quarter and produced $19 million of cash flow from operations. The company has no long-term debt.
Verdict:
Vicor Corporation made 57 cents a share on nearly $400 million of sales in FY2022. The two analyst firms that have projections on Vicor see between $1.05 and $1.24 a share in profits in FY2023 on a low-single-digit gain in revenues. They see sales growth accelerating in FY2024 into the low or mid-teens and profits growing to $1.27 to $1.62 a share.
I would be hard-pressed to consider paying 70 times forward earnings and over eight times forward revenues in the ZIRP market environment that has been present for most of the past decade and a half since the Great Financial Crisis. However, with short-term treasury yields around 5.5%, there is no reason to buy something with a 2% operational cash flow yield (Annualizing cash flow from the second quarter). Especially not when I see a recession on the horizon, and right soon ( I , II , III ). A significant move down from here seems to have a higher probability than continuation of this rally. Therefore, I have initiated some out-of-the-money bear put spreads against VICR, anticipating the stock could easily give up at least half of its huge rally off its previous lows in 2023.
"If you want to find the secrets of the universe, think in terms of energy, frequency and vibration ." - Nikola Tesla
For further details see:
Vicor: Valuations Say 'Sell'