SkyWater Technology Stock Before Q3 Earnings: To Buy or Not to Buy?

SkyWater Technology SKYT is set to report its third-quarter 2024 results on Nov. 7.SKYT expects third-quarter 2024 revenues to be slightly higher on a sequential basis. The Zacks Consensus Estimate for third-quarter revenues is currently pegged at $94.65 million, indicating growth of 32.16% year over year. The consensus mark for loss is currently pegged at 2 cents per share, down from earnings of 1 cent over the past 30 days. SkyWater reported loss of 5 cents per share in the year-ago quarter.SKYT’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, missing once, the earnings surprise being 49.09%, on average. SkyWater Technology, Inc. Price and EPS Surprise SkyWater Technology, Inc. price-eps-surprise | SkyWater Technology, Inc. Quote Find the latest EPS estimates and surprises on Zacks Earnings Calendar.Let’s see how things are shaping up prior to this announcement.Key Factors to Consider for SKYT’s Q3 EarningsSkyWater is benefiting from strong demand for its solutions in the Aerospace & Defense (A&D) end-market. It rides on several strategic A&D programs, as well as improving capabilities and operational execution. The trend is expected to have continued in the to-be-reported quarter.SKYT is riding on strong ATS revenues. In the second quarter of 2024, ATS development revenues increased 18% year over year and 1% sequentially to $62 million.It expects third-quarter 2024 ATS development revenues to be $16 million, plus or minus 3%. SkyWaters’ ATS development revenues are benefiting from continued strength in its aerospace and defense business. However, ATS revenues in the second half of 2024 are expected to suffer from low demand as SKYT saw some pull-ins in projects in the first half.Wafer services revenues are expected in the $4-$5 million range.SKYT expects wafer services to remain quite soft for at least another quarter or two, reflecting the continued weakness in the broader industrial market. Tool revenues are expected to be roughly $30 million in the to-be-reported quarter.The company expects gross margin to decline sequentially to the mid-to-high-teens (on both a GAAP and non-GAAP basis), driven by the negative impact of low-margin Tools revenues of roughly 700 basis points. A sequential decline in ATS and Wafer Services is expected to have hurt the gross margin.SKYT Shares Underperform Sector, IndustrySkyWater shares have returned 0.7% year to date (YTD), underperforming the Zacks Computer and Technology sector’s return of 24% and the Zacks Electronics - Semiconductors industry’s 34.4%.It has also lagged peers, including Impinj PI and Broadcom AVGO, but outperformed FormFactor FORM,AVGO and PI shares have jumped 51.6% and 114.6%, respectively, while the industry has appreciated 34.4% over the same timeframe. FORM shares have declined 6.9% YTD.Year-to-Date Performance Chart Image Source: Zacks Investment Research SKYT stock is not so cheap, as the Value Score of C suggests a stretched valuation at this moment.In terms of the trailing 12-month EV/EBITDA ratio, SkyWater is trading at 23.45X, higher than its median of 22.38X and the sector’s 18.72X.EV/EBITDA Ratio (TTM) Image Source: Zacks Investment Research Higher ATS & Tool Revenues to Aid SKYT ProspectsFor 2024, SkyWater expects ATS development growth between 10% and 20% over 2023.SkyWater is benefiting from increasing customer-funded capital expenditure investments, which it records as Tool revenues. It expects $80 million in customer-funded capital expenditure investments for the full year.SKYT believes it is in the early stages of an anticipated multiyear period of elevated customer co-investment. These investments are helping it add new capabilities to its fabs and additional scale to its business.SkyWater remains on track to install more than $200 million of new customer-funded tooling between 2024 and 2026.Although Wafer Services 2024 revenues are expected to decline significantly (60-65% over 2023), for 2025, Wafer Services revenues are expected to improve, driven by the thermal imaging and medical diagnostics segments.The company’s focus on next-generation medical technologies for the novel categories of instruments and devices is expected to drive top-line growth. SkyWater’s collaboration with QuantumPsi will support a key facet of the latter’s state-of-the-art proteome sequencing technology to enable enhanced analysis of proteins. This is expected to speed up drug discovery process.The company’s gross margin is expected to benefit from SKYT’s capital expenditure light and high operating leverage business model.SkyWater Shares - Buy, Sell or Hold?SkyWater is suffering from sluggish Wafer Services revenues and lower demand for ATS in the near term. Stretched valuation is a concern for investors.Currently, SkyWatrer carries a Zacks Rank #4 (Sell), which implies that investors should stay away from the stock for the time being. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Research Chief Names "Single Best Pick to Double"From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.This company targets millennial and Gen Z audiences, generating nearly $1 billion in revenue last quarter alone. A recent pullback makes now an ideal time to jump aboard. Of course, all our elite picks aren’t winners but this one could far surpass earlier Zacks’ Stocks Set to Double like Nano-X Imaging which shot up +129.6% in little more than 9 months.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report FormFactor, Inc. (FORM): Free Stock Analysis Report Broadcom Inc. (AVGO): Free Stock Analysis Report Impinj, Inc. (PI): Free Stock Analysis Report SkyWater Technology, Inc. (SKYT): Free Stock Analysis ReportTo read this article on Zacks.com click here.Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks