MKS Instruments (MKSI - Analyst Report) has
consistently beat the Zacks Consensus Estimate for earnings and
revenue. The most recent report was a blowout, yet the stock
ended up lower in the session following the report. Let's take
a look at the quarter, the earnings history, estimate revisions
and of course the valuation. I think you will like what you
see from this Zacks Rank #1 (Strong Buy) stock seeing as it is
the Bull of the Day.
MKSI beat the Zacks Consensus Estimate of
$0.47 when it reported $0.72 last week. This $0.25 beat was
good for a 53% positive earnings surprise.
The topline was equally as impressive with the company
delivering $326M in sales when the Zacks Consensus Estimate was
looking for $293M. That $33M beat was good for an 11% positive
MKS Instruments makes instruments, components and
subsystems used to measure, control and analyze gases in
semiconductor manufacturing and similar industrial
manufacturing processes. They offer a range of products
including but not limited to semiconductors, optical filters
and fiber optics cables, magnetic and optical storage devices
and media, solar panels, eyeglasses, architectural glass,
cutting tools, and freeze-dried pharmaceuticals.
The last time MKSI missed the Zacks Consensus Estimate
was in 2012. Since then, there has been a string of 15
consecutive positive earnings surprises. This is a very
enviable track record and demonstrates management's ability to
guide Wall Street to a beatable number and then still
The topline also has a very strong history. The company
has not missed on top since September 2012 (the same report in
which MKSI missed on the bottom line). So what does that look
like? Check this chart out:
When you have a Zacks Rank #1 (Strong Buy) you are
going to see positive earnings estimate revisions. Following
the most recent beat, the Zacks Consensus Estimate for 2016 has
moved from $2.25 to $2.65. That is a big jump of 17.7%
The 2017 numbers are really the story here. I am not sure I can say it any better than this picture:
The 2017 Zacks Consensus Estimate was $2.36 back in April and is now $3.32 just 4 months later. That is a HUGE move.
I have already painted a picture that is pretty good, but this is where the rubber meets the road.
I see MKSI trading at 17x forward estimates while the industry average trades at 18x. This is a small discount, but check out the other metrics that investors commonly look to. The price to book multiple of 2.1x is well below the 4x industry average while the price to sales multiple of 2.7x is much less than half the 6.4x industry average.
When I see a stock that is trading at a discount, I look to see the expected growth rate in earnings and revenue. Normally I will see weaker metrics there, but in the case of MKSI, all I see is strength.
Revenue are expected to grow 54% this year while the industry average is not expected to grow at all. In fact, the industry average is calling for contraction of 70% making that growth number look astonishing. Next year revenues are expected to grow around 20% while the industry average bounces back to see growth of about 12%.
Earning growth this year is expected to be 19%, and that tops the industry average of 14%. Next year MKSI is slated to show 25% earnings growth with the industry average looking for only 17%.
Zacks has developed a chart that helps investors see
how earnings estimates have impacted the price of the stock
over the last several years. We call this chart the price and
consensus chart, and each color coded lines represents analyst
estimates over a designated year. As estimates increase, the
stock tends to follow. The Zacks Rank is impacted by earnings
estimate increases, beats and incorporates the idea of analyst
agreement and magnitude. As a Zacks Rank #1 (Strong Buy) we see
that estimates are moving higher.
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