On Oct 12, 2015, Zacks Investment Research downgraded MKS Instruments, Inc. MKSI to a Zacks Rank #4 (Sell) from a Zacks Rank #3 (Hold). Going by the Zacks model, companies holding a Zacks Rank #4 have high chances of underperforming the broader market in the quarters ahead.
Why the Downgrade?
As a multinational company, MKS Instruments generates a large proportion of its revenues from various foreign markets, especially Asian countries such as Korea, China and Japan. Any sudden unfavorable fluctuations in currency or exchange rates in these economies would hurt the company’s revenues and margins in the upcoming quarters. For instance, the company’s international revenues currently face adverse impact from a strong U.S. dollar.
Moreover, MKS Instruments is exposed to risks of market share loss due to extensive industry rivalry. In order to maintain its competency in the market, the company invests heavily toward innovation. However, in the rapidly evolving technology market, expensive inventions often become outdated within a short span of time, thus rendering such expenses futile. This increases the company’s operating costs, and negatively impacts its margins.
MKS Instruments’ customer base is also highly concentrated in nature. Sudden unfavorable changes in the demand pattern of prominent buyers might lower its top-line figures in the upcoming quarters.
Stocks to Consider
Better-ranked stocks in the industry include Axcelis Technologies Inc. ACLS, Cohu, Inc. COHU and Ultratech, Inc. UTEK. All three stocks hold a Zacks Rank #2 (Buy).
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