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Onto Innovation (ONTO) Up 122% in a Year: Will the Rally Last?

Onto Innovation ONTO is continuing its upward trajectory, with a gain of 121.5% in the past year compared with the S&P 500 composite and sub-industry’s growth of 27% and 112.4%, respectively.

Headquartered in Wilmington, MA, Onto Innovation specializes in the design, development, manufacture and support of metrology and inspection tools primarily for semiconductor device fabricators, silicon wafer manufacturers and advanced packaging manufacturers in the semiconductor space.

Solid financial performance has been aiding a good run on the trading front. The stock has gained 9.2% since announcing first-quarter 2024 results on May 9.

ONTO outpaced estimates in three of the trailing four quarters while missing in the other, with the average surprise being 2.6%.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

The stock is trading 4.5% below its 52-week high of $238.13, suggesting further upside potential.

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With healthy fundamentals and strong growth opportunities, this Zacks Rank #1 (Strong Buy) stock appears to be a solid investment option at the moment.

Apart from a favorable rank, ONTO has a Growth Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 or 2 (Buy) and a Growth Score of A or B offer solid investment opportunities.

Factors Driving Growth

Onto Innovation’s performance is gaining from increasing demand for its Dragonfly inspection system. The system is witnessing strong adoption owing to higher demand for advanced packaging of AI compute devices.

ONTO’s Dragonfly G3 platform integrates 2D and 3D technologies to identify yield-killing defects and compute features that are important for advanced front-end and packaging technologies.

The company recently introduced cutting-edge sub-surface inspection capability for its Dragonfly G3 2D/3D inspection and metrology platform. This innovative capability allows whole wafer inspection by identifying critical defects that have the potential to affect yield and disrupt subsequent processing stages.

In January 2024, the company unveiled a new Firefly G3 inspection and metrology system designed for automated process control for high-volume production of panel-level substrates. The new Firefly system supports additional process control steps through the use of 3D metrology sensors. The system is capable of measuring film thicknesses and the height of metal RDL lines. The addition of these sensors will enable users to collect important data needed to mature their process in a relatively shorter time.

In the last reported quarter, revenues from the Dragonfly system increased 30% sequentially. Management expects demand for the system to remain robust in the second quarter as well. It projects overall revenues in the $230-$240 million band for the quarter.

Increasing orders, especially for Atlas OCD and Iris planer films, to support advanced logic devices is driving the revenues from the advanced nodes market. In the last reported quarter, advanced nodes revenues of $27 million increased 45% sequentially.

It remains focused on inventory reduction to boost cash-flow performance. Improvements in supply-chain initiatives are likely to drive margin performance.

Weak global macro conditions, forex fluctuations and fierce competition are concerns. Management expects DRAM revenues to remain soft in the second quarter.

A Look at Estimates

The Zacks Consensus Estimate for ONTO’s 2024 and 2025 revenues is pegged at $936.2 million and $1.06 billion, indicating growth of 14.8% and 13.5% from the year-ago levels, respectively.

The consensus estimate for 2024 and 2025 EPS implies a rise of 34.3% and 25.4% from the prior-year actuals to $5.01 and $6.28, respectively.

The consensus mark for 2024 and 2025 EPS has increased 6.6% and 10%, respectively, in the past 60 days, reflecting analysts’ optimism.

Other Stocks to Consider

Some other top-ranked stocks worth consideration in the broader technology space are Badger Meter BMI, Oracle ORCL and The Descartes Systems Group Inc DSGX. While BMI sports a Zacks Rank #1, ORCL and DSGX carry a Zacks Rank of 2, at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for BMI’s 2024 EPS is pegged at $3.89, up 9.9% in the past 60 days. BMI’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 12.7%. The long-term earnings growth rate is 15.6%. Shares of BMI have risen 45.9% in the past year.

The Zacks Consensus Estimate for ORCL’s fiscal 2025 EPS is pegged at $6.15. The long-term earnings growth rate is 9.7%. Oracle’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 3.6%. Shares of ORCL have risen 19% in the past year.

The Zacks Consensus Estimate for Descartes’ fiscal 2025 EPS has increased 1.2% in the past 60 days to $1.69. Descartes’ earnings beat the Zacks Consensus Estimate in two of the last four quarters while missing the two, the average surprise being 5.1%. Shares of DSGX have risen 30.5% in the past year.

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Badger Meter, Inc. (BMI) : Free Stock Analysis Report

Oracle Corporation (ORCL) : Free Stock Analysis Report

The Descartes Systems Group Inc. (DSGX) : Free Stock Analysis Report

Onto Innovation Inc. (ONTO) : Free Stock Analysis Report

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