Element Solutions (ESI) Unveils 2 Semiconductor Transactions
Element Solutions Inc. ESI recently announced two transactions to strengthen its capabilities and customer relationships in the advanced electronics materials industries. These transactions total about $15 million in annualized adjusted EBITDA, with significant growth potential assuming electronics markets improve and some innovative technologies gain consumer acceptance.
Element Solutions has agreed to pay Entegris, Inc. $185 million (net of anticipated cash tax benefits) to terminate its long-standing distribution agreement for ViaForm electrochemical deposition products. MacDermid Alpha Electronics Solutions, a business unit of Element Solutions, is currently developing and manufacturing these wafer-level plating products for the world's leading semiconductor fabricators, which are supplied by Entegris under an evergreen distribution agreement.
Following a transition period, Element Solutions will manage all parts of the ViaForm product line in-house, resulting in a more efficient supply chain and improved customer service. The payment will be made with cash on hand and an additional $150 million borrowed under the company's senior credit arrangement.
Element Solutions also acquired Kuprion, Inc., a provider of next-generation nano-copper technology to the semiconductor, circuit board and electronics assembly markets. ActiveCopper technology from the company addresses the effects of thermal expansion. It provides superior performance and reliability in a wide range of emerging applications, including electric vehicles, high-frequency 5G networks, IC substrate manufacturing, advanced packaging, mission-critical aerospace and defense systems and datacenters. This buyout is designed with an upfront payment and prospective earn-out payments based on product qualification and revenue milestones over several years.
These transactions strengthen organizations' relationships and capabilities in long-term growth industries driven by the spread of high-performance computers for artificial intelligence, industrial automation and other developing applications. The transactions are immediately accretive to adjusted earnings per share (EPS) and result in a significant cash tax advantage, ESI noted.
Shares of Element Solutions have lost 5.4% over the past year against a 5.7% rise of its industry.
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The company, on its first-quarter call, said that it expects adjusted EBITDA for second-quarter 2023 of roughly $120 million. ESI now expects adjusted EBITDA to be at the bottom end of its prior guidance of $510 million to $530 million for 2023.
It estimates full-year 2023 adjusted earnings per share of around $1.40. ESI anticipates generating free cash flow of roughly $275 million for 2023.
Element Solutions Inc. Price and Consensus
Element Solutions Inc. price-consensus-chart | Element Solutions Inc. Quote
Zacks Rank & Key Picks
ESI currently carries a Zacks Rank #3 (Hold).
Better-ranked stocks to consider in the basic materials space include Koppers Holdings Inc. KOP, Gold Fields Limited GFI and Linde plc LIN, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
The Zacks Consensus Estimate for Koppers’ current-year earnings is currently pegged at $4.40, implying year-over-year growth of 6.3%. It has a trailing four-quarter earnings surprise of 13.64%, on average. KOP has gained 29.1% in a year.
The Zacks Consensus Estimate for Gold Fields’ current-year earnings has been revised 23.5% upward in the past 60 days. The consensus estimate for current-year earnings for GFI is currently pegged at $1.05, indicating year-over-year growth of 8.3%. The company’s shares have gained 65.7% in the past year.
The Zacks Consensus Estimate for Linde’s current-year earnings has been revised 3.8% upward in the past 60 days. LIN beat the Zacks Consensus Estimate in all the last four quarters. It delivered a trailing four-quarter earnings surprise of 6.9%, on average. The company’s shares have gained 19.7% in the past year.
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