UBS lowers Ultra Clean stock price target on capacity expansion

UBS has reduced its price target on Ultra Clean Holdings Inc. (UCTT) shares to $135 from $150, while keeping its Buy rating. The stock is currently trading at $76.08, marking a 6.9% decline over the past week. Despite this volatility, UCTT shares have surged 187% year-to-date, with analysts maintaining a strong buy consensus. UBS spoke with Ultra Clean management prior to this announcement and discussed the company’s outlook for wafer fabrication equipment, as well as its upcoming at-the-market offering on August 14, 2024.

Management revealed that the offering primarily aimed to retain capital for inventory and possibly expedite capacity expansion. Ultra Clean anticipates baseline capital expenditures in 2027 to remain close to this year’s level, with an extra $100 million set aside for capacity expansion. This additional capacity could support revenue of $5 billion by the end of 2028, equivalent to $250 billion in wafer fabrication equipment spending.

The company's footprint could enable an upside scenario of $280 billion, assuming about 15% flex-up capacity. UBS left the meeting with a slightly more optimistic view of the wafer fabrication equipment environment, aligning with analysts' expectations for 32% revenue growth in fiscal 2026 and profitability with earnings of $3.11 per share.

The stock is currently deemed slightly overvalued based on UBS's Fair Value analysis. Ultra Clean reported strong second-quarter 2026 results, beating Wall Street estimates with $0.70 earnings per share on $644.9 million in revenue. Management also gave optimistic third-quarter guidance, anticipating revenue between $700 million and $750 million and earnings per share from $0.83 to $1.30.

These results reflect robust demand driven by artificial intelligence infrastructure. Needham recently increased its price target for UCTT to $125 from $92, maintaining a Buy rating, following a beat on second-quarter results and surpassing third-quarter guidance. These developments highlight Ultra Clean's growth potential and positive market sentiment.