MKS Instruments, Inc. is a global provider of instruments, subsystems and process control solutions that measure, control, power, deliver, monitor and analyze critical parameters of advanced manufacturing processes to improve process performance and productivity. their products are derived from core competencies in automation and control, gas composition analysis, lasers, materials delivery, optics, photonics, pressure, power, reactive gas and vacuum. They also provide services relating to the maintenance and repair of their products, software, service and maintenance, installation services and training.
MKS Instruments, Inc. provides instruments, subsystems, and process control solutions that measure, control, power, deliver, monitor, and analyze critical parameters of manufacturing processes worldwide. The company operates through two segments, Vacuum & Analysis and Light & Motion. The Vacuum & Analysis segment provides analytical and control solutions products, including gas analyzers, automation control products, IO modules, automation software, data analytics software, and precision machined components and electromechanical assemblies; and materials delivery solutions products comprising flow and valve technologies, as well as integrated pressure measurement and control subsystems to provide customers with precise control capabilities that are optimized for a given application. It also offers power delivery, plasma, and reactive gas generation products used in semiconductor and other thin film applications, and in medical imaging equipment applications; and direct and indirect pressure measurement and integrated process solutions. The Light & Motion segment offers lasers and laser-based systems, including lasers and amplifiers, fiber lasers, diode-pumped solid-state lasers, high-energy pulsed lasers, and tunable lasers, as well as accessories; optics products, such as precision optics and lens assemblies, thin-film filters and coatings, replicated mirrors, and ruled and holographic diffraction gratings, as well as subsystems and subassemblies; photonics products comprising photonics instruments and systems, and vibration and motion control products, as well as three-dimensional non-contact measurement sensors and equipment. It markets and sells its products and services through global direct sales organization, independent distributors and sales representatives, Websites, and product catalogs. The company was founded in 1961 and is headquartered in Andover, Massachusetts.
(Summary) (Company) (Chart)
| 28 January 2018 Price $104.20 1yr Target $117.83 Analysts 6 Dividend $0.72 Payout Ratio 13.09% 1yr Cap Gain 13.08% Yield 0.69% 1yr Tot Return 13.77% P/E 18.65 PEG 0.56 Beta 1.07 | EPS (ttm) $5.50 EPS next yr $6.56 Forward P/E 15.89 EPS next 5yr 33.42% 1yr Price Support $219.23 Market Cap $5.66 Bil Revenues $1.81 Bil Earnings $307.00 Mil Profit Margin 16.96% Quick Ratio 3.10 Current Ratio 4.20 Debt/Equity 0.29 | 1yr RevGR 59.18% 3yr RevGR 24.32% 5yr RevGR 9.50% 1yr EarnGR -14.92% 3yr EarnGR 42.02% 5yr EarnGR -4.57% 1yr DivGR 0.74% 3yr DivGR 2.02% 5yr DivGR 2.53% ROA 13.40% ROE 22.40% |
Recent Events and Organizational Restructuring
On April 29, 2016, MKS Instruments completed the acquisition of Newport Corporation. The Company paid to the former Newport stockholders aggregate consideration of approximately $905 million and repaid approximately $93 million of debt. Newport is a global supplier of advanced technology products and systems to customers in the scientific research and defense/security, microelectronics, life and health sciences and industrial manufacturing markets.
In conjunction with the acquisition of Newport, MKSI changed the structure of their reportable segments. The Company's two reportable segments are the Vacuum & Analysis segment and the Light & Motion segment. The Vacuum & Analysis segment represents the legacy MKS business and the Light & Motion segment represents the legacy Newport business.
The Vacuum & Analysis segment provides a broad range of instruments, components, subsystems and software which are derived from core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control and information technology, ozone generation and delivery, RF & DC power, reactive gas generation and vacuum technology. The Light & Motion segment provides a broad range of instruments, components and subsystems which are derived from core competencies in lasers, photonics and optics.
MKSI groups their products into seven product groups based upon the similarity of the product function, type of product and manufacturing processes. These seven groups are: Analytical and Controls Solutions Products; Materials Delivery Solutions Products; Power, Plasma and Reactive Gas Solutions Products; Pressure and Vacuum Measurement Products; Photonics Products; Optics Products; and Laser Products. The Analytical and Controls Solutions Products, Materials Delivery Solutions Products, Power, Plasma and Reactive Gas Solutions Products and the Pressure and Vacuum Measurement Products are included in the Vacuum & Analysis segment and the Photonics Products, Optics Products and Lasers Products are included in the Light & Motion segment.
On April 29, 2016, MKS Instruments completed the acquisition of Newport Corporation. The Company paid to the former Newport stockholders aggregate consideration of approximately $905 million and repaid approximately $93 million of debt. Newport is a global supplier of advanced technology products and systems to customers in the scientific research and defense/security, microelectronics, life and health sciences and industrial manufacturing markets.
In conjunction with the acquisition of Newport, MKSI changed the structure of their reportable segments. The Company's two reportable segments are the Vacuum & Analysis segment and the Light & Motion segment. The Vacuum & Analysis segment represents the legacy MKS business and the Light & Motion segment represents the legacy Newport business.
The Vacuum & Analysis segment provides a broad range of instruments, components, subsystems and software which are derived from core competencies in pressure measurement and control, flow measurement and control, gas and vapor delivery, gas composition analysis, residual gas analysis, leak detection, control and information technology, ozone generation and delivery, RF & DC power, reactive gas generation and vacuum technology. The Light & Motion segment provides a broad range of instruments, components and subsystems which are derived from core competencies in lasers, photonics and optics.
MKSI groups their products into seven product groups based upon the similarity of the product function, type of product and manufacturing processes. These seven groups are: Analytical and Controls Solutions Products; Materials Delivery Solutions Products; Power, Plasma and Reactive Gas Solutions Products; Pressure and Vacuum Measurement Products; Photonics Products; Optics Products; and Laser Products. The Analytical and Controls Solutions Products, Materials Delivery Solutions Products, Power, Plasma and Reactive Gas Solutions Products and the Pressure and Vacuum Measurement Products are included in the Vacuum & Analysis segment and the Photonics Products, Optics Products and Lasers Products are included in the Light & Motion segment.
Markets and Applications
From the very beginning of the Company, management has focused on the needs of the customer and establishing long-term collaborative relationships. Their primary markets are manufacturers of capital equipment for semiconductor manufacturing, electronic thin films, life and health sciences, process and industrial technologies, as well as research and defense. Approximately 58%, 69% and 70% of net revenues for 2016, 2015 and 2014 were from sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers. As a result of the Company's acquisition of Newport, it's now estimated that sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers may account for approximately 50% of total sales going forward.
Approximately 42%, 31% and 30% of net revenues in 2016, 2015 and 2014 were from other advanced manufacturing applications. These include, but are not limited to, electronic thin films, life and health sciences, process and industrial technologies, as well as research and defense.
A significant portion of net revenues are from sales to customers in international markets. For years ending in December 31, 2016, 2015 and 2014, international net revenues accounted for approximately 48%, 44% and 43% of total net revenues. A significant portion of international net revenues were go Korea, Japan and Israel.
Semiconductor Manufacturing Applications. The majority of these sales are derived from products sold to semiconductor capital equipment manufacturers and semiconductor device manufacturers. These products are used in the major semiconductor processing steps such as depositing thin films of material onto silicon wafer substrates, etching, cleaning, lithography, metrology and inspection. In addition, the Company provides specialized instruments and software to monitor and analyze process performance. MKSI anticipates that the semiconductor manufacturing market will continue to account for a substantial portion of their sales. While the semiconductor device manufacturing market is global, major semiconductor capital equipment manufacturers are concentrated in Japan, Korea, Taiwan, the United States and China.
Other Markets. In addition to semiconductor manufacturing, the Company's products are used in the manufacture of electronic thin films, life and health sciences, process and industrial technologies, as well as research and defense.
Electronic Thin Films. Electronic Thin Films are a primary component of numerous electronic products including flat panel displays, light emitting diodes, solar cells and data storage media. Major manufacturers of Electronic Thin Film equipment are concentrated in China, Japan, Korea, Taiwan and the United States.
Life and Health Sciences. The Company's products for Life and Health Sciences are used in a diverse array of applications including bioimaging, medical instrument sterilization, medical device manufacturing, analytical, diagnostic and surgical instrumentation, consumable medical supply manufacturing and pharmaceutical production. The Life and Health Sciences customers are located globally.
Process and Industrial Technologies. Process and Industrial Technologies encompasses a wide range of diverse applications such as architectural glass coating, laser marking, measurement and scribing, natural gas and oil production and environmental monitoring. Process and Industrial Technologies manufacturers are located in developed and developing countries across the globe.
Government and Research. In addition, the Company's products are sold to government, university and industrial laboratories for applications involving research and development in materials science, physical chemistry, photonics, optics and electronics materials. This products are also sold for monitoring and defense applications including surveillance, imaging and infrastructure protection. Major equipment and process providers and research laboratories are concentrated in China, Europe, Japan, Korea and the United States.
From the very beginning of the Company, management has focused on the needs of the customer and establishing long-term collaborative relationships. Their primary markets are manufacturers of capital equipment for semiconductor manufacturing, electronic thin films, life and health sciences, process and industrial technologies, as well as research and defense. Approximately 58%, 69% and 70% of net revenues for 2016, 2015 and 2014 were from sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers. As a result of the Company's acquisition of Newport, it's now estimated that sales to semiconductor capital equipment manufacturers and semiconductor device manufacturers may account for approximately 50% of total sales going forward.
Approximately 42%, 31% and 30% of net revenues in 2016, 2015 and 2014 were from other advanced manufacturing applications. These include, but are not limited to, electronic thin films, life and health sciences, process and industrial technologies, as well as research and defense.
A significant portion of net revenues are from sales to customers in international markets. For years ending in December 31, 2016, 2015 and 2014, international net revenues accounted for approximately 48%, 44% and 43% of total net revenues. A significant portion of international net revenues were go Korea, Japan and Israel.
Semiconductor Manufacturing Applications. The majority of these sales are derived from products sold to semiconductor capital equipment manufacturers and semiconductor device manufacturers. These products are used in the major semiconductor processing steps such as depositing thin films of material onto silicon wafer substrates, etching, cleaning, lithography, metrology and inspection. In addition, the Company provides specialized instruments and software to monitor and analyze process performance. MKSI anticipates that the semiconductor manufacturing market will continue to account for a substantial portion of their sales. While the semiconductor device manufacturing market is global, major semiconductor capital equipment manufacturers are concentrated in Japan, Korea, Taiwan, the United States and China.
Other Markets. In addition to semiconductor manufacturing, the Company's products are used in the manufacture of electronic thin films, life and health sciences, process and industrial technologies, as well as research and defense.
Electronic Thin Films. Electronic Thin Films are a primary component of numerous electronic products including flat panel displays, light emitting diodes, solar cells and data storage media. Major manufacturers of Electronic Thin Film equipment are concentrated in China, Japan, Korea, Taiwan and the United States.
Life and Health Sciences. The Company's products for Life and Health Sciences are used in a diverse array of applications including bioimaging, medical instrument sterilization, medical device manufacturing, analytical, diagnostic and surgical instrumentation, consumable medical supply manufacturing and pharmaceutical production. The Life and Health Sciences customers are located globally.
Process and Industrial Technologies. Process and Industrial Technologies encompasses a wide range of diverse applications such as architectural glass coating, laser marking, measurement and scribing, natural gas and oil production and environmental monitoring. Process and Industrial Technologies manufacturers are located in developed and developing countries across the globe.
Government and Research. In addition, the Company's products are sold to government, university and industrial laboratories for applications involving research and development in materials science, physical chemistry, photonics, optics and electronics materials. This products are also sold for monitoring and defense applications including surveillance, imaging and infrastructure protection. Major equipment and process providers and research laboratories are concentrated in China, Europe, Japan, Korea and the United States.
Product Groups
Vacuum and Analysis Segment. The Vacuum and Analysis segment includes Analytical and Control Solutions; Materials Delivery Solutions; Power, Plasma and Reactive Gas Generation Solutions; and Pressure and Vacuum Measurement Solutions.
Analytical and Control Solutions. The Analytical and Control Solutions products include gas analyzers, automation control products, IO modules, automation software, data analytics software, and precision machined components and electromechanical assemblies.
Materials Delivery Solutions. The Materials Delivery Solutions products include flow and valve technologies as well as integrated pressure measurement and control subsystems to provide customers with precise control capabilities that are optimized for a given application.
Power, Plasma and Reactive Gas Solutions. The Power, Plasma and Reactive Gas Solutions products include power delivery, plasma and reactive gas generation products used in semiconductor and other thin film applications and in medical imaging equipment applications.
Power Delivery Products. MKSI designs and manufactures microwave, direct current and radio frequency power delivery systems as well as radio frequency matching networks and metrology products. In the semiconductor, thin film and other market sectors, their power supplies are used to provide energy to various etching, stripping and deposition processes. Our power amplifiers are also used in medical imaging equipment .
Plasma and Reactive Gas Generation Products. They design and manufacture reactive gas generation products, which create reactive species. A reactive species is an atom or molecule in an unstable state, which is used to facilitate various chemical reactions in the processing of thin films (deposition of films, etching and cleaning of films and surface modifications). A number of different technologies are used to create reactive gas including different plasma technologies and barrier discharge technologies.
Pressure and Vacuum Measurement Solutions. The Company's Pressure and Vacuum Measurement Solutions products consist of direct and indirect pressure measurement and integrated process solutions. Each of our pressure measurement and vacuum product lines consist of products that are designed for a variety of pressure ranges and accuracies.
Light and Motion Segment
The Light and Motion segment includes Lasers, Optics and Photonics solutions.
Lasers. The Laser products segment includes lasers and laser-based systems to include ultrafast lasers and amplifiers, fiber lasers, diode-pumped solid-state lasers, high-energy pulsed lasers and tunable lasers. In addition to providing a wide range of standard and configured laser products and accessories to our end-user customers, we also work closely with our original equipment manufacturer customers to develop lasers and laser system designs optimized for their product and technology roadmaps.
Optics. The Optics products segment includes precision optics and lens assemblies, thin-film filters and coatings, replicated mirrors and ruled and holographic diffraction gratings. The Company also designs, develops and manufactures subsystems and subassemblies that integrate a broad portfolio of products and technologies into solutions that meet the specific application requirements of OEM and select end-user customers.
Photonics. The Photonics products segment includes photonics instruments and systems, vibration and motion control as well as three-dimensional non-contact measurement sensors and equipment.
Vacuum and Analysis Segment. The Vacuum and Analysis segment includes Analytical and Control Solutions; Materials Delivery Solutions; Power, Plasma and Reactive Gas Generation Solutions; and Pressure and Vacuum Measurement Solutions.
Analytical and Control Solutions. The Analytical and Control Solutions products include gas analyzers, automation control products, IO modules, automation software, data analytics software, and precision machined components and electromechanical assemblies.
Materials Delivery Solutions. The Materials Delivery Solutions products include flow and valve technologies as well as integrated pressure measurement and control subsystems to provide customers with precise control capabilities that are optimized for a given application.
Power, Plasma and Reactive Gas Solutions. The Power, Plasma and Reactive Gas Solutions products include power delivery, plasma and reactive gas generation products used in semiconductor and other thin film applications and in medical imaging equipment applications.
Power Delivery Products. MKSI designs and manufactures microwave, direct current and radio frequency power delivery systems as well as radio frequency matching networks and metrology products. In the semiconductor, thin film and other market sectors, their power supplies are used to provide energy to various etching, stripping and deposition processes. Our power amplifiers are also used in medical imaging equipment .
Plasma and Reactive Gas Generation Products. They design and manufacture reactive gas generation products, which create reactive species. A reactive species is an atom or molecule in an unstable state, which is used to facilitate various chemical reactions in the processing of thin films (deposition of films, etching and cleaning of films and surface modifications). A number of different technologies are used to create reactive gas including different plasma technologies and barrier discharge technologies.
Pressure and Vacuum Measurement Solutions. The Company's Pressure and Vacuum Measurement Solutions products consist of direct and indirect pressure measurement and integrated process solutions. Each of our pressure measurement and vacuum product lines consist of products that are designed for a variety of pressure ranges and accuracies.
Light and Motion Segment
The Light and Motion segment includes Lasers, Optics and Photonics solutions.
Lasers. The Laser products segment includes lasers and laser-based systems to include ultrafast lasers and amplifiers, fiber lasers, diode-pumped solid-state lasers, high-energy pulsed lasers and tunable lasers. In addition to providing a wide range of standard and configured laser products and accessories to our end-user customers, we also work closely with our original equipment manufacturer customers to develop lasers and laser system designs optimized for their product and technology roadmaps.
Optics. The Optics products segment includes precision optics and lens assemblies, thin-film filters and coatings, replicated mirrors and ruled and holographic diffraction gratings. The Company also designs, develops and manufactures subsystems and subassemblies that integrate a broad portfolio of products and technologies into solutions that meet the specific application requirements of OEM and select end-user customers.
Photonics. The Photonics products segment includes photonics instruments and systems, vibration and motion control as well as three-dimensional non-contact measurement sensors and equipment.
My Assessment
This Company is obviously integral to quite a few manufacturing processes and companies around the world. The share price is also undervalued based on the Company's fundamentals listed above. Sales are growing very nicely and dividends have been improving but only slowly. I think that's probably due to the erratic nature of their earnings, both of which should increase greatly in the months and years ahead.
Earnings are expected to increase at an annual rate of over 33% over the next five years and that should help increase both the dividend as well as the share price. I think the analysts projecting the future stock price have missed the mark on these shares. I believe they could easily move toward $130/$140 per share by this time next year simply explained by an expanding P/E and a PEG approaching 1. I think this is an outstanding opportunity for stock appreciation and dividend growth.
I'm looking to start a position in these shares very soon that I'll continue to develop over time by buying on dips and augmenting funds received from dividend payments. Right now the shares seem to be consolidating between $95 and $108 per share so that's the target for my initial entry. Hopefully I can get a position started before this takes off and gets away from me.
This Company is obviously integral to quite a few manufacturing processes and companies around the world. The share price is also undervalued based on the Company's fundamentals listed above. Sales are growing very nicely and dividends have been improving but only slowly. I think that's probably due to the erratic nature of their earnings, both of which should increase greatly in the months and years ahead.
Earnings are expected to increase at an annual rate of over 33% over the next five years and that should help increase both the dividend as well as the share price. I think the analysts projecting the future stock price have missed the mark on these shares. I believe they could easily move toward $130/$140 per share by this time next year simply explained by an expanding P/E and a PEG approaching 1. I think this is an outstanding opportunity for stock appreciation and dividend growth.
I'm looking to start a position in these shares very soon that I'll continue to develop over time by buying on dips and augmenting funds received from dividend payments. Right now the shares seem to be consolidating between $95 and $108 per share so that's the target for my initial entry. Hopefully I can get a position started before this takes off and gets away from me.
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