Sunday, September 18, 2016

Advanced Semiconductor Needs Driving Advanced Energy Industries

This has been a good year for smaller providers of capital equipment to the semiconductor industry, with names like Brooks (NASDAQ:BRKS), Ultratech (NASDAQ:UTEK), Rudolph (NASDAQ:RTEC), MKS (NASDAQ:MKSI) and Orbotech (NASDAQ:ORBK) up around 20% to 30%. Advanced Energy Industries (NASDAQ:AEIS) has left them in the dust, though, as this company has seen its share price improve almost 60% year to date, and over 75% over the past year. Better still, this isn't just sizzle and hot air - orders for upgrades and expansions tied to new 3D chip architectures are driving real, honest-to-goodness growth in the semiconductor business and solid margins as well.

How much further can it go? Semi cap equipment is even more cyclical than semiconductors, and the stocks tend to overshoot (sometimes wildly) both to the good and to the bad). I like the prospects for design wins extending AEIS's run of semiconductor growth, just as I like the prospects for advanced 3D architectures to expand the market. I'm also bullish on the potential of markets/end-users like OLEDs proving to be larger than currently expected.

The "but" is that a lot of this is already in the share price. Valuations have moved up pretty significant from January/February of this year, and AEIS's valuation already assumes pretty meaningful improvement in revenue and EBITDA margins. While I'm not ruling out the possibility that continuing outperformance will drive higher estimates, this looks more like a growth/momentum/cyclical recovery story than any sort of value play today.

Read the full article here:
Advanced Semiconductor Needs Driving Advanced Energy Industries

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