April30
Veeco Instruments (NASDAQ:VECO) is a very interesting stock, if only for the reason that the company is well positioned to benefit from multiple long term mega trends. This includes a focus on material use for instance within semiconductors, data storage and scientific applications.
Actual technologies and services to think of include laser processing systems, lithography systems, wet processing systems, atomic layer position and physical vapor deposition systems, among others. This makes the company well positioned, but perhaps some focus is necessary given the breadth of the technologies and limited scale of the business.
Some Perspective
Despite the great positioning of Veeco, the company has seen operational struggles in the past. Hard to believe that this was a $50 stock already in 2011, not considered to be among the best times for the market and economy. Posting sales at around half a billion, while reporting modest profitability, Veeco has seen sales trend between $300 and $500 million ever since, and it has posted (substantial) losses until 2019.
After seven years of sequential losses, Veeco returned to profitability in 2020 and has seen improved momentum again, as a $10 stock in 2019 has “only” recovered to $20 at the moment, in part because the losses were “financed” by dilution of the shareholder base.
Early in 2022, Veeco posted its 2021 sales and the results were very strong. Full year sales rose 28% to $583 million, and GAAP operating profits of $57 million were posted, that is even after a $12 million amortization charge. Net earnings only came in at $26 million, or half a dollar per share, amidst high interest expenses, although that net debt was very limited, nearly non-existing. Substantial net interest expenses amidst a flattish net cash position create room for P&L optimization down the road.
2022 – A Year Of Continued Momentum
The company guided for momentum to continue in 2022, seeing first quarter sales at a midpoint of $155 million. Shares traded around the $30 mark at the time. Concerns about slower economic growth weighed on the shares, which fell back to the high-teens by the summer, hovering around the $20 mark ever since.
First quarter sales were reported at $156 million, with adjusted earnings posted at $0.38 per share. Second quarter sales were seen around $160 million, yet the midpoint of the earnings guidance was only seen at $0.28 per share. In the end, the company topped the guidance, with sales posted at $164 million and earnings reported at $0.35 per share. Moreover, Veeco guided for a strong third quarter with sales seen around $170 million and earnings around $0.40 per share.
After posting third quarter sales at $172 million adjusted earnings at $0.45 per share, the company issued a softer guidance for the final quarter with revenues seen around $160 million and earnings around $0.32 per share.
At this rate the company is posting sales around $650 million in 2022, with GAAP earnings seen at nearly a dollar per share. Net cash is pretty flattish, assuming no dilution from the convertible notes outstanding, as the current share count stands around 49 million shares, for a $1 billion valuation.
This translates into reasonable valuations at around 1.5 times sales and 20 times adjusted earnings. These look like a very reasonable multiple given the secular growth and the fact that the company has seen solid topline sales growth in 2022 despite toughening conditions in end markets.
And Now?
After Veeco saw softer momentum based on the fourth quarter guidance, the company started 2023 with an interesting bolt-on deal. Veeco has reached a deal to acquire Epiluvac AB, a Swedish-based manufacturer of chemical vapor deposition epitaxy systems, systems mostly used in the e-vehicle market.
Veeco will pay $30 million upfront, with performance-based earn-outs totaling another potential $35 million. The near term impact is very limited, as Epiluvac has just 11 employees, with realistic revenues only expected in 2024.
This seems like a highly strategic deal, but it is way too soon to see if this bolt-on acquisition makes sense. What can be said is that the overall valuation of Veeco looks more interesting than it has done in a long while. The performance in recent years is solid, even as the best of the momentum appears to be a thing of the past year.
