Friday, July 29, 2016

Exciting Business Opportunities At Orbotech

I think there's a lot to like about Orbotech (NASDAQ:ORBK). The company is on the small side - or at least relative to giants like Applied Materials (NASDAQ:AMAT) and Lam Research (NASDAQ:LRCX) - but it doesn't play where it can't be a leader, and the company has three $300 million-plus markets to support growth in the coming years. Management has been pretty savvy at capital allocation and strategic decisions in the past, and I like Orbotech's chances to exploit demand tied to wearables, next-gen phones, IoT, and smarter cars.

Valuation is the fly in the ointment. The shares are near a 52-week high, as are many semiconductor tool companies, and today's price is about midway between my DCF-based fair value (which tends to run conservative for cyclical tech) and my margin-EV/rev-based fair value (which tends to run to the aggressive side). I think value investors would have to grit their teeth to love this one without making higher growth assumptions, but more momentum-oriented investors might find more to like.

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Exciting Business Opportunities At Orbotech

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