Orbotech's Multi-Prong Growth Strategy Looking Better And Better

I liked Orbotech (ORBK) back in the summer of 2016, but my bullishness then underestimated the emergent momentum in the company’s business and the market’s enthusiasm for tool/machinery plays leveraged to trends like OLEDs. While Orbotech’s revenue growth can be erratic from quarter to quarter, the third quarter saw all the pieces coming together and management’s November analyst day laid out a bullish outlook for the next three years.

Valuation is less clear-cut to me now, with the shares up about 60% over the past twelve months and close to 250% over the past three years. Demand tied to advanced smartphones, AR/VR, OLED, and other applications should be able to drive double-digit revenue growth for the next few years and high single-digit growth for the long term, but it’s hard to have confidence that the good times will just keep rolling in what has long been a cyclical industry. Although, I think you can make a cogent argument that the company’s growth and margin prospects over the next three years can support a higher price; there’s not much of a safety net from discounted cash flow and I consider this a higher-risk prospect from valuation and earnings predictability standpoints.

Read more here:
Orbotech's Multi-Prong Growth Strategy Looking Better And Better

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

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.

Click here for more:
Exciting Business Opportunities At Orbotech