Amkor Technology, Inc. (AMKR) is one of the largest packaging and test sub-contractors. March quarter results exceeded both the consensus and management expectations. Management provided guidance for the second quarter.
Accordingly, revenue is expected to be up 1%-3% sequentially, with the gross margin at around 25%. The effective tax rate is expected to be around 8% for the year as the company continues to experience the benefits of its NOL carry-forwards. Management will be booking a gain of $9.7 million from a real estate deal, which closed in April.
The net effect is an EPS of $0.33-$0.36 in the next quarter. Management expects total capital expenditures to be 12%-14% of revenue in 2008. Advanced packaging and testing demand remains strong, while traditional lead frame packages are soft. The net impact is a higher-ASP business that is a positive for both revenue growth and profitability.
Management is committed to improving the highly leveraged balance sheet. We are reiterating our Hold rating on AMKR shares. AMKR shares are currently trading at a 9.4x multiple to our 2008 earnings estimate (P/E).
The company is a leading sub-contractor in a highly competitive and fragmented market. It has stayed ahead with R&D programs, despite consistent cost reduction over the last two years. Considering its strong market position, revenue growth opportunities and expanding margins, we would be very positive on the stock.
But we are wary of the phenomenal debt position and the macro environment that could put pressure on the top line. Consequently, we recommend investors to avoid shares for the time being. We are reiterating our $13 target price, which corresponds to a P/E multiple of 10.2x.
Sejuti Banerjea contributed to this report.
Read the full analyst report on AMKR.
Get real-time market insights and profitable stock recommendations from the team of analysts at Zacks Equity Research. See all todays Analyst Blog entries on Zacks.com.