We believe that MKS Instruments, Inc. (MKSI - Free Report) is a solid choice for investors seeking exposure in the electronics space. The company is poised to gain traction from its initiatives to deleverage its balance sheet and reduce interest expenses. Also, diversified end-market exposure and healthy returns to its shareholders are positives.
The stock has been upgraded to a Zacks Rank #1 (Strong Buy) on Dec 6.
MKS Instruments reported better-than-expected results in three of the last four quarters while delivering in-line results in one. Average earnings surprise was a positive 7.36%. Notably, the company’s shares have rallied 7.3% in the last three months, outperforming 4.5% growth of the industry.
Why the Upgrade?
Before we begin, a brief discussion on MKS Instruments’ results in the third quarter of 2017 has been provided. The quarter’s net income grew 79.3% year over year while net sales advanced 28% on the back of 29.7% rise in Products revenues and 13.4% growth in Services revenues. Margin profile improved, with gross margin increasing 100 basis points (bps) year over year and operating margin growing 150 bps.
We believe that MKS Instruments is well placed to gain traction from its exposure and solid product offerings in the semiconductor, industrial technologies, life & health sciences and research & defense end markets. In the coming quarters, the company believes investments made in sales and applications support functions, as well as efforts of launching advanced products will continue to drive its performance. For fourth-quarter 2017, the company anticipates revenues to be within the $480-$520 million range and earnings per share to be $1.52-$1.76 per share.
Additionally, MKS Instruments’ new financial strategy that aims at reducing interest expenses by deleveraging balance sheet will prove beneficial over the long term. Notably, the company made voluntary prepayment of $50 million principle amount of term loan in November. This prepayment lowered the term loan balance to $398 million. Moreover, returning high value to shareholders through dividend payments remains a priority for the company. In October 2017, the company announced a 3% increase in its quarterly dividend rate.
The stock’s earnings estimates for both 2017 and 2018 have been increased by six brokerage firms in the last 60 days. The Zacks Consensus Estimate is now pegged at $5.89 for 2017 and $6.47 for 2018, representing growth of 8.3% and 9.5% from their respective tallies 60 days ago.
MKS Instruments, Inc. Price and Consensus