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Why GT Advanced Technologies (GTAT) and Rubicon (RBCN) Exploded Today

NEW YORK (TheStreet) -- GT Advanced Technologies (GTAT) rocketed 22.2% to $10.24 as investors celebrate news of its $578 million deal with Apple (AAPL). Current Apple supplier Corning (GLW) fell on back of the deal, while GT competitor Rubicon Technology (RBCN) soared in response.

The multi-year contract requires GT to supply Apple with significant volumes of sapphire, the material used to protect delicate features of Apple's hardware such as the iPhone 5s' TouchID and camera lens. The inking of this agreement suggests Apple will begin to use the material on a larger scale across its hardware line, potentially replacing Gorilla Glass in its iDevices, and even in the oft-rumored iWatch.

"We believe that it is in the long-term best interests of our company, employees and shareholders to build a robust sapphire materials business with recurring revenues," said GT CEO Tom Gutierrez in a statement.

As part of the deal, GT will produce sapphire material out of Apple's Mesa, Arizona facility, using the latter's $578 million capital injection. GT is expected to reimburse the amount over five years ending 2020.

The news weighed on Corning, the supplier of Gorilla Glass which currently outfits iPad and iPhone models with its Gorilla Glass product. Investment firm Cantor Fitzgerald defended the stock, rationalizing it would be too expensive for Apple to replace the displays in each of its models over the coming quarters. Shares tumbled 2.9% to $16.76. 

GT competitor Rubicon Technology, a sapphire substrate manufacturer, shot up on the news, gaining 27.3% to $11.23.

News of GT's deal with Apple overshadowed its dismal third-quarter results.  It reported losses of 16 cents a share on revenue of $40.3 million, 76% lower than a year earlier. Analysts surveyed by Thomson Reuters expected a loss of 1 cent a share on $92.5 million in revenue.

For full-year 2013, the company forecast a loss of 40 cents to 50 cents a share on revenue in the range of $290 million to $320 million, significantly lower than a consensus of 23 cents a share on $525.8 million. Management expects a sharp improvement in 2014 revenue in the range of $600 million to $800 million, 80% of which likely be contributed by its sapphire segment.

Apple shares were little changed, dipping 0.35% to $524.90.

TheStreet Ratings team rates Apple Inc as a Buy with a ratings score of A-. The team has this to say about their recommendation:

"We rate Apple Inc (AAPL) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, good cash flow from operations, expanding profit margins and notable return on equity. We feel these strengths outweigh the fact that the company has had lackluster performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • AAPL's revenue growth has slightly outpaced the industry average of 3%. Since the same quarter one year prior, revenues slightly increased by 4.2%. This growth in revenue does not appear to have trickled down to the company's bottom line, displayed by a decline in earnings per share.
  • AAPL's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.40, which illustrates the ability to avoid short-term cash problems.
  • Net operating cash flow has slightly increased to $9,908 million or 8.45% when compared to the same quarter last year. In addition, APPLE INC has also modestly surpassed the industry average cash flow growth rate of 7.06%.
  • 41.78% is the gross profit margin for APPLE INC which we consider to be strong. Regardless of AAPL's high profit margin, it has managed to decrease from the same period last year. Despite the mixed results of the gross profit margin, AAPL's net profit margin of 20.04% compares favorably to the industry average.
  • APPLE INC' earnings per share from the most recent quarter came in slightly below the year earlier quarter. The company has suffered a declining pattern of earnings per share over the past year. However, we anticipate this trend reversing over the coming year. During the past fiscal year, APPLE INC reported lower earnings of $39.63 a share vs. $44.16 a share in the prior year. This year, the market expects an improvement in earnings ($43.44 vs. $39.63).

TheStreet Ratings team rates Corning Inc as a Buy with a ratings score of B. The team has this to say about their recommendation:

"We rate Corning Inc (GLW) a BUY. This is driven by some important positives, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, largely solid financial position with reasonable debt levels by most measures, expanding profit margins, increase in stock price during the past year and growth in earnings per share. We feel these strengths outweigh the fact that the company has had somewhat disappointing return on equity."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • GLW's revenue growth has slightly outpaced the industry average of 2.1%. Since the same quarter one year prior, revenues slightly increased by 3.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • GLW's debt-to-equity ratio is very low at 0.14 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Along with this, the company maintains a quick ratio of 4.24, which clearly demonstrates the ability to cover short-term cash needs.
  • The gross profit margin for CORNING INC is rather high; currently it is at 56.76%. It has increased from the same quarter the previous year. Along with this, the net profit margin of 32.18% significantly outperformed against the industry average.
  • Compared to where it was 12 months ago, the stock is up, but it has so far lagged the appreciation in the S&P 500. Turning our attention to the future direction of the stock, it goes without saying that even the best stocks can fall in an overall down market. However, in any other environment, this stock still has good upside potential despite the fact that it has already risen in the past year.
  • CORNING INC has improved earnings per share by 43.3% in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, CORNING INC reported lower earnings of $1.15 a share vs. $1.76 a share in the prior year. This year, the market expects an improvement in earnings ($1.25 vs. $1.15).

TheStreet Ratings team rates Rubicon Technology INC as a Sell with a ratings score of D+. The team has this to say about their recommendation:

"We rate Rubicon Technology INC (RBCN) a SELL. This is driven by a number of negative factors, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and generally disappointing historical performance in the stock itself."

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Rubicon Technology INC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last two years. We anticipate that this should continue in the coming year. During the past fiscal year, Rubicon Technology INC swung to a loss, reporting -25 cents a share vs. $1.60 a share in the prior year. For the next year, the market is expecting a contraction of 242% in earnings (-86 cents vs. -25 cents).
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Semiconductors & Semiconductor Equipment industry. The net income has significantly decreased by 2247.1% when compared to the same quarter one year ago, falling from $0.27 million to -$5.84 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Semiconductors & Semiconductor Equipment industry and the overall market, RUBICON TECHNOLOGY INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • In its most recent trading session, RBCN has closed at a price level that was not very different from its closing price of one year earlier. This is probably due to its weak earnings growth as well as other mixed factors. The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time.
  • The revenue fell significantly faster than the industry average of 9.2%. Since the same quarter one year prior, revenues fell by 44.3%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.

Stock quotes in this article: GTAT, RBCN 

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