Super Micro Computer, Inc.

SMCI Details

Super Micro Computer, Inc. (NASDAQ: SMCI) provides high-performance and high-efficiency server technology services to various markets, including cloud computing, artificial intelligence, 5G and edge computing. SMCI's solutions range from servers, storage, blade and workstations to full racks, networking devices, server management software and technology support and services. The company sells its server systems and server subsystems, and accessories through a combination of distributors, including value-added resellers and system integrators and other equipment manufacturers (OEMs).

Revenue and Geography Mix (Source: FY21 Earnings Presentation, August 10, 2021)

Strategic Partnership: On August 9, 2021, SMCI announced a partnership with Qumulo Inc., a pioneer in simplifying enterprise file data management in hybrid cloud environments, to offer cost-effective file data storage and computing solution to customers. This partnership caters to growing data center density and digital transformation needs.

Enhancing Product Portfolio: On July 27, 2021, SMCI launched new versions of its market-proven top-loading storage solutions, comprising 60-bay and 90-bay systems and new Simply Double storage systems optimized for the latest 3rd Gen Intel Xeon Scalable processors and PCI-E 4.0 NVMe drives. These systems are well-suited to both cloud-scale storage and HPC storage applications.

FY21 Results: The company reported YoY growth of 6.53% in net sales to USD 3.56 billion in FY21 (ended June 30, 2021) compared to USD 3.34 billion in FY20. Net income for the company increased to USD 111.87 million in FY21 vs. USD 84.31 million in FY20. As of June 30, 2021, the company had a cash balance of USD 232.27 million and total debt of USD 98.19 million.

Key Risks:  SMCI operates in the server and storage solution industry and faces direct competition from global technology companies like Cisco, Dell, Hewlett-Packard Enterprise, etc., and vendors who sell application-optimized servers such as Inspur, Quanta Computer, and Wiwynn, which could undermine the company's business interests. In recent years, aggressive price competition has pulled market prices for many of its products. Should this trend continue, it could harm the financials of the company.

Outlook: In Q1FY22, SMCI expects to generate revenue in the range of USD 900 – 980 million, thus realizing YoY growth of 23% at the mid-point. The company expects to earn EPS of USD 0.28 – 0.48 and USD 0.16 – 0.36 on a non-GAAP and GAAP basis, respectively.

For FY22, SMCI expects to clock revenue of USD 4.1 – 4.5 billion, representing a 21% YoY increase at the mid-level, along with a minimum EPS of USD 3.00 and USD 2.60 on a non-GAAP and GAAP basis, respectively.

Valuation Methodology: EV/Sales Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

SMCI Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: SMCI's share price has declined by 0.67% in the past month and is currently leaning towards the higher band of the 52-week range of USD 21.95 to USD 40.71. The stock is currently trading between its 50 and 200 DMA levels, and its RSI Index is 45.20. We have valued the stock using the EV/Sales multiple-based relative valuation methodology and arrived at a target price of USD 42.34. Considering the strong top and bottom-line performance, recent collaborations, positive outlook, current valuation, and associated risks, we recommend a "Speculative Buy" rating on the stock at the current price of USD 35.47, up 1.43% as of August 27, 2021, 11:54 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached. 

Vishay Precision Group, Inc.

VPG Details

Vishay Precision Group, Inc. (NYSE: VPG) uses its patented foil technology to design, manufacture, and commercialize sensors, specialized resistors, and strain gauges. Precision foil resistors, foil strain gauges, and other sensors are among VPG's products, transforming mechanical impulses into an electrical signal for display, processing, and control instrumentation and systems products. VPG has operations in the United States, the United Kingdom, Israel, Asia, Canada, and other European countries. Foil Technology Products, Force Sensors, and Weighing and Control Systems are VPG's three product segments.

Acquisition of DTS: On June 01, 2021, VPG announced that it completed the acquisition of California-based Diversified Technical Systems, Inc. (DTS), a leading manufacturer of data gathering systems and sensors for safety testing, for USD 47 million in an all-cash transaction. The acquisition of DTS, according to VPG, will provide considerable value to the company and its shareholders.

H1FY21 Results: The company reported a 15.05% rise in net revenues to USD 145.93 million during H1FY21 (ended July 03, 2021) compared to USD 126.84 million during H1FY20 (ended June 27, 2020), due to increased volume under Foil Technology and Force Sensors segments, and the accumulation of revenues from the acquisition of DTS. In addition, VPG witnessed an increase in net income to USD 9.00 million during H1FY21 vs. USD 5.04 million during H1FY20. As of July 03, 2021, its cash and cash equivalents stood at USD 73.46 million, with a total debt of USD 60.67 million.

Key Risks: Long product development cycles are typical for the company's force sensor and weighing and control systems. As a result, VPG may incur significant expenses without corresponding earnings during product development and testing. In addition, any significant change in the customer's business demands or delays in product delivery might influence the company's revenue and profitability.

Furthermore, VPG has production facilities in China, Europe, Canada, Israel, and the United States, among other places. Therefore, any major rise in tariffs or other restrictions on Chinese, European, Canadian, or Israeli imports to the US might harm its operations and finances.

Outlook: As of August 10, 2021, VPG expects its net revenues for Q3FY21 to grow sequentially and range between USD 81 to USD 87 million, assuming constant Q2FY21 exchange rates. 

Valuation Methodology: Price/Earnings Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

VPG Daily Technical Chart (Source: REFINITIV)

Stock Recommendation: VPG's stock price rose 17.57% in the past six months and is currently leaning towards the higher band of the 52-week range of USD 23.42 to USD 39.71. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 56.87. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 45.49. Considering the company's growth prospects, strategic expansion initiatives, inorganic growth programs, associated risks, and current valuation, we recommend a "Speculative Buy" rating on the stock at the current price of USD 38.00, up 2.07% as of August 27, 2021, 11:43 AM ET.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.

* Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached.

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