Why Is Onto Innovation (ONTO) Down 6.9% Since Last Earnings Report?

Zacks Equity Research
·4-min read

It has been about a month since the last earnings report for Onto Innovation (ONTO). Shares have lost about 6.9% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Onto Innovation due for a breakout? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Onto Innovation Q4 Earnings & Revenues Beat Estimates

Onto Innovation reported healthy fourth-quarter 2020 results, wherein the top and the bottom lines beat the respective Zacks Consensus Estimate.

Net Income

On a GAAP basis, net income in the December quarter was $19.9 million or 40 cents per share against loss of $17.8 million or loss of 41 cents per share in the prior-year quarter. The improvement primarily resulted from operating income.

In 2020, net income was $31 million or 63 cents per share compared with $1.9 million or 6 cents per share in 2019.

Quarterly non-GAAP net income came in at $35.6 million or 72 cents per share compared with $18.1 million or 41 cents per share in the year-ago quarter. The bottom line beat the Zacks Consensus Estimate by 12 cents.

Revenues

Quarterly revenues totaled $155.1 million compared with $120.6 million in the year-ago quarter. The improvement was driven by strength in memory and radio frequency communications for the 5G handset ramp and the acceptance of the company’s new products. The top line surpassed the consensus estimate of $150 million.

Based on market segmentation, 42% of revenues were derived from specialty device and advanced packaging markets, 21% from software and services, and 37% from advanced nodes market.

In 2020, revenues surged 81.9% year over year to $556.5 million.

Other Details

Total operating expenses were $60.6 million compared with $62.9 million in the prior-year quarter. Non-GAAP gross profit was $84 million compared with $60.9 million a year ago with respective margins of 54% and 51%. The year-over-year increase was driven by a favorable product mix on the back of higher revenues. Non-GAAP operating income was $37.6 million compared with $20.2 million in the year-ago quarter.

Cash Flow & Liquidity

During the fourth quarter, Onto Innovation generated $32.6 million of cash from operations.  

As of Dec 26, 2020, the company had $373.7 million in cash and cash equivalents with $83.3 million of non-current liabilities. This compares with the respective tallies of $320.2 million and $98.8 million a year ago.

Q1 Guidance

Onto Innovation has guided for the first quarter of 2021. The company expects revenues in the range of $155-$169 million. GAAP earnings per share (EPS) are expected in the range of 35-49 cents. Non-GAAP EPS are estimated in the band of 62-76 cents.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. The consensus estimate has shifted 12.57% due to these changes.

VGM Scores

At this time, Onto Innovation has a nice Growth Score of B, a grade with the same score on the momentum front. However, the stock was allocated a grade of D on the value side, putting it in the bottom 40% for this investment strategy.

Overall, the stock has an aggregate VGM Score of C. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of these revisions looks promising. It comes with little surprise Onto Innovation has a Zacks Rank #2 (Buy). We expect an above average return from the stock in the next few months.


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