Seeking Alpha: Semiconductor Spending Looms Large For FEI

A lot of the "yeah, but's" that I mentioned in my last piece on electron microscopy company FEI Company (NASDAQ:FEIC) have come to pass. Spending on semiconductor equipment has disappointed as major fabs like TSMC (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung (OTC:SSNLF) revise their plans, oil/gas demand has dried up, life science demand has been consistently inconsistent, and the company lowered its long-term revenue growth guidance during its midyear analyst day.

None of these really surprised me, particularly the guidance revision, so the impact to my valuation wasn't too extreme. There's still ongoing risk to the quarterly results given the uncertainty in semiconductor industry spending, but the valuation is pretty interesting for a market leader with multiple growth drivers. There's still a risk that the company's margin targets prove too ambitious, but at around 15% below my fair value, it's worth a closer look.

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Semiconductor Spending Looms Large For FEI

Seeking Alpha: FEI Company Finally Showing Some Value Characteristics

It's been a long wait, but electron microscopy specialist FEI Company (NASDAQ:FEIC) is finally trading at a valuation where I think GARP investors might want to take a closer look. Of course, no opportunity comes without a cost and the price of this potential value opportunity is an eroding growth outlook that has seen estimates come down steadily for months. That, in turn, has led to a run of underperformance in the shares, which are down 3% since my last article, and underperforming relative to peers/comps like JEOL, Hitachi High-Tech, Keysight (NYSE:KEYS), PerkinElmer (NYSE:PKI) and Waters (NYSE:WAT).

Management is likely to be hard-pressed to achieve its long-term growth goal of 12% per year, and the upcoming Analyst Day may see revisions to the outlook that take another bite out of the valuation. Looking beyond that, I continue to believe that there is good growth potential in electronics, material sciences, life sciences, and resources that can support mid-to-high single-digit growth for the long term. A significant reliance on emerging markets is a risk factor, as are rival technologies, but there seems to be emerging value here.

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FEI Company Finally Showing Some Value Characteristics

Seeking Alpha: FEI Company's Retreat Not Quite Enough

I have a feeling that FEI Company (NASDAQ:FEIC) is going to be the sort of stock that adds to my collection of grey hairs. There's not a lot to criticize in terms of the quality of the company - it has built leading share in electron microscopy with a broad range of offerings (scanning electron, transmission electron, dual-beam, fixed ion beam, et al) and has made a point of using innovation and product development to essentially create new market opportunities for its technology. Margins are pretty good and the company has put together a solid recent run of annual returns on invested capital.

The issue, then and now, is price. I thought FEI Company looked too pricey in February and the market did punish the company for consecutive cuts to sales guidance, but it's not exactly cheap yet. On the other hand, quality scientific equipment companies don't often trade at bargain prices and FEI Company is looking at multiple growth opportunities across its end markets. I'm inclined to maintain "price discipline" here and wait for a better price/value trade-off, but I won't be surprised if a strong third quarter (a beat-and-raise) sends these shares back into the high $80s or above.

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FEI Company's Retreat Not Quite Enough

Seeking Alpha: Wall Street Continues To Prize FEI Company's Market Share And Growth Prospects

Good companies have a knack for going further than you might otherwise think, and FEI Company (FEIC) is a good case in point. This leading electron microscopy company has continued to impress investors with both its market share and growth potential as electron microscopy becomes increasing relevant to a larger group of end markets. Not exactly cheap back in September, these shares have nevertheless beaten the market in the last five months while rising more than 10%.

It is going to take a pretty ugly set of circumstances for FEI Company to ever look cheap on conventional metrics. I'm not going to argue against strong growth in markets like natural resources and life sciences, nor the growing potential of selling into key emerging markets like China. Instead, I will simply observe that I would be nervous about holding shares when the music stops and the market suddenly reconsiders just how much it is willing to pay for growth and market share, but that may not occur for many years.

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Wall Street Continues To Prize FEI Company's Market Share And Growth Prospects