YB new stock pitches (Mon, Dec 30)

FormFactor (FORM), the leading player in the probe card market with a 33% share, manufactures critical test and measurement products for semiconductors. The company benefits from high switching costs, recurring revenue, and a concentrated market structure where the top three suppliers control 75% of sales. FormFactor's probe cards are customized, consumable products that become entrenched in chip manufacturers' processes, leading to stable cash flows. The emergence of High Bandwidth Memory (HBM) chips, used in AI applications, is driving growth due to increased test intensity and complexity. While FormFactor's stock has recently lagged due to slow demand in PC and smartphone chips and inventory issues with a main HBM customer, the company expects an HBM rebound in Q4 2024 and into 2025. New HBM design wins with another memory manufacturer and the upcoming next iteration of HBM technology are expected to contribute to future growth, supporting the company's long-term prospects.

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Progyny (PGNY), a fertility benefits manager, has experienced a sell-off due to topline deceleration, poor guidance, and the loss of a large customer (Amazon). Despite these challenges, PGNY remains a best-in-class operator in an industry with significant growth potential. Trading at 5.5x 2025 consensus EBITDA with 80%+ FCF conversion and 20% of its market cap in net cash, PGNY has a credible path to high teens growth rates while expanding margins. Assuming low single-digit growth in 2025 and reacceleration to mid/high teens in 2026-2027, along with margin expansion, a $26 price target (6x 2027 EBITDA) is projected, offering a 20%+ 3-year IRR. A re-rate to 8x EBITDA could yield a 30%+ IRR. Growth drivers include expanding TAM through SMB market penetration, new product offerings, and secular fertility trends. Risks include continued guidance misses and execution challenges in new markets. The $26 price target represents a 6x multiple on projected 2027 EBITDA of nearly $300M, with potential upside to $33 at an 8x multiple.

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Vermilion Energy (VET) is an undervalued E&P company trading at a 20% FCF yield, with a C$26 price target. The company plans to grow production by 1-2% annually, focusing on its North American Montney assets and international operations in Germany and Croatia. VET's Germany program, despite initial skepticism, shows promise with successful wells and potential for 900 Bcf of inventory. Croatia offers high-netback gas production and growth potential. The company may acquire NAM assets at 2x cash flow, adding immediate value. VET's exposure to European TTF gas pricing provides high netbacks, with expectations of sustained $11/mcf pricing long-term. Key catalysts include new wells in Germany, Croatia development announcements, a potential NAM acquisition, and resilient TTF pricing. Risks involve operational issues in the Montney and market skepticism about inventory quality. The stock's current valuation suggests a declining production profile, which management aims to disprove through successful drilling programs and potential acquisitions.

Read the full article here. Read time: 11 min