On Dec 30, 2014, we issued an updated research report on premium technology company, MKS Instruments, Inc. (MKSI). The company provides instruments, subsystems and process-control solutions required to measure, control, power, monitor and analyze parameters of manufacturing processes. Although MKS Instruments shares a high brand value in the market, its trade is subjected to threats of external market rivalry and volatility.
Bullish Factors
In third-quarter 2014, adjusted earnings of MKS Instruments surpassed the Zacks Consensus Estimate by 16.2%, while net sales climbed 12.2% year over year. The improvement in top line and earnings were primarily driven by growing demand in the global semiconductor market. Furthermore, the company’s strong financial performance was supported by considerable returns accrued from its acquired business division, Granville-Phillips.
Besides, in the last reported quarter, MKS Instruments successfully lowered its operating expenses, backed by specialized cost-reduction plans. Such initiatives involved reducing workforce expenses, strategic project fund allocation and appropriate cost-saving research and development activities. By lowering expenditures and improving margins in the near future, MKS Instruments aims to reward its shareholders through new share repurchase and dividend payout programs.
The company aims to become the industry leader through its primordial technology leadership motto. With the recent launch of its new 902B Absolute Piezo vacuum transducer, the company has strengthened its position in the vacuum process environment. Such outcomes are expected to improve results in the upcoming quarters.
Bearish Outcomes
MKS Instruments is exposed to several external market uncertainties. Political, economical, social and technological changes in foreign countries often impact the company’s financials. The organization generates a large proportion of its revenue from different foreign marketplaces, especially Asian countries such as Korea, China and Japan. Sudden unfavorable currency or exchange rate fluctuations in these economies would hamper the revenue and margins of MKS Instruments in the upcoming quarters.
Also, the company conducts its trade in a highly competitive industry, with Nor-Cal Products Inc., VAT Inc. and Brooks Automation, Inc. being some of its major market rivals. In order to avoid risks of market share loss, MKS Instruments tries to augment its competency through innovations, which involve lofty expenses. But, in the rapidly evolving technology market, expensive inventions often become outdated within a limited span of time. As a result, the company’s operating expenses escalate, thereby negatively impacting margins.
Further, the customer base of MKS Instruments is highly concentrated in nature. In the last reported quarter, 46% of the company’s total sales came from its top ten customers. Sudden unfavorable changes in the demand of such prominent buyers can significantly hurt MKS Instruments’ earnings and margins in the near future.
With a market capitalization of $1.97 billion, MKS Instruments currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks in the industry include Rudolph Technologies Inc. (RTEC), Tessera Technologies Inc. (TSRA) and Brooks Automation, Inc. (BRKS). While both Rudolph Technologies and Tessera Technologies sport a Zacks Rank #1 (Strong Buy), Brooks Automation holds a Zacks Rank #2 (Buy).
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