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Why MKS Instruments Is a Must-Add Stock to Your Portfolio

An array of hopeful and doubtful aspects is currently influencing the performance of technology stocks.

Donald Trump’s promise to cut down corporate tax rate, steady U.S. economic growth, higher demand for cloud computing, Augmented Reality (‘AR’) and Artificial Intelligence (‘AI’) technologies are all good news for technology companies. However, Trump ’s claim to bring back jobs in the U.S. might impact the outsourcing activities of these companies. Notably, the following move would possibly weigh over the aggregate savings of these bigwigs, which are typically pumped into research & development purposes.  

Zacks Counsel

We believe that adding MKS Instruments, Inc. MKSI to your portfolio would be a safe investment harbor at the moment.  

Post release of robust third-quarter 2016 (Oct 26, 2016) results, this Zacks Rank #1 (Strong Buy) company’s shares recorded an average return of 20.37% – outperforming 11.69% returns provided by the Zacks categorized Electronic Manufacturing-Machinery industry.

Notably, the attractiveness of this stock as a current investment choice is further accentuated by its favorable Growth Style Score ‘B’.

Reasons for the Solid Run

Revenue Growth: Over the last few quarters, MKS Instruments’ aggregate revenue has been growing on the back of higher demand in the semiconductor market.

In third-quarter 2016, the company’s top line surged a whopping 82.3% year over year. The upside was driven by robust semiconductor trade (in both vacuum analysis and light motion divisions). Moreover, the strategic acquisition of Newport Corporation (closed in Apr 2016) had largely aided the record quarterly top-line increment.

Apart from improving semiconductor sales, business diversification made in booming market segments, such as life & health sciences, electronic thin films, research & defense and process & industrial technologies, are expected to bolster revenues in the upcoming quarters.

For fourth-quarter 2016, MKS Instruments projects to generate revenues within the range of $370–$410 million, against $172 million recorded in the year-ago quarter.

Notably, the stock’s projected sales growth (F1/F0) is currently pegged at 58.06%.

Margin Improvement: Margin growth has been impressive for MKS Instruments for the last few trailing quarters. The company’s gross profit margin expanded 50 basis points (bps) year over year in the third quarter, on the back of favorable product mix.

By the end of 2016, MKS Instruments aims to widen its gross margin by approximately 500 bps, year over year, by lowering costs via greater operational efficiency. The company also intends to accrue an annualized cost savings within the range of $18–$19 million by the end of the current year.

Earnings per Share Growth: MKS Instruments posted a positive average earnings surprise of 26.77% over the last four quarters, beating estimates in all the four seasons. The company is augmenting its bottom line backed by sturdy revenue growth, greater operational efficacy and lower costs.

For fourth-quarter 2016, MKS Instruments anticipates earnings within the range of $0.87–$1.10 per share, against $0.34 per share reported in the year-ago comparable period.

Upward Estimate Revisions: Over the past 60 days, the Zacks Consensus Estimate for MKS Instruments moved up 10.2% to $2.92 per share for 2016 and 5.1% to $3.49 for 2017. The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #1 for the stock.

Notably, the stock’s projected earnings per share (‘EPS’) growth (F1/F0) is currently pegged at 31.35%.

Lowering Debt: MKS Instruments is currently focusing on a deleveraging strategy. In sync with this, the company is lowering its debt via voluntary principle prepayment of term loan. In third-quarter 2016, MKS Instruments lowered its term loan by $60 million through a voluntary principle prepayment.

Key Picks

Other similarly-ranked stocks in the industry include Applied Optoelectronics, Inc. AAOI, Advanced Energy Industries, Inc. AEIS and Applied Materials, Inc. AMAT.

Applied Optoelectronics, Inc has an average positive earnings surprise of 106.74% for the last four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

Advanced Energy Industries, Inc’s average positive earnings surprise is 12.31% for the trailing four quarters.

Applied Materials, Inc‘s average positive earnings surprise is 4.54% for the trailing four quarters.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 "Strong Buy" stocks – absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 "Strong Sells" and other private research. See these stocks free >>


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MKS INSTRUMENTS (MKSI): Free Stock Analysis Report
 
APPLIED OPTOELE (AAOI): Free Stock Analysis Report
 
APPLD MATLS INC (AMAT): Free Stock Analysis Report
 
ADV ENERGY INDS (AEIS): Free Stock Analysis Report
 
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