Citigroup Reiterates Hold Rating on Advanced Energy Industries (AEIS)

Citigroup is out with a research report this morning, where it reiterates its Hold/Speculative rating on Advanced Energy Industries AEIS; it has a $16.00 price target on the stock. The Citi analysts cited the company's recently announced quarterly earnings report, which was mediocre at best. They highlighted three key positives and negatives: Positives: 1) PV Powered acquisition immediately accretive, delivering ~60% Q/Q growth in inverter revenue 2) Semi rev growth (+12.5% Q/Q) finally on pace with its OEM customers 3) Healthy guidance indicating continuous strength in inverter and better-than-expected semi orders. Negatives: 1) Gross margin below expectation despite divestiture of low-margin Aera biz 2) Semi headwinds intensifying 3) Inverter growth getting hard to repeat As for valuation, the analysts remarked, “Because of the solar business and that inverters are early in their growth cycle, we are choosing to use more of a spot earnings estimate for our valuation. We apply a ~13x multiple to our F2011 EPS estimate of $1.20 and arrive at a $16 target. With a significant part of the revenue growth coming from high-growth solar inverter in FY2011, AEIS is warranted to command a higher earnings multiple compared to the pure cyclical semiconductor equipment companies.”