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Why MKS Instruments is a Must-Add Stock to Your Portfolio?

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We believe adding MKS Instruments, Inc. (MKSI - Free Report) to your portfolio will be a promising investment move at the moment.


Over the past month, shares of this Zacks Rank #2 (Buy) company have rallied 22.6%, outperforming 14.4% growth recorded by the industry.

Why to Grab the Stock?

Robust Business Model: MKS Instruments is a market leader in the front- and back-end semiconductor industry. However, the company has been fortifying its presence in other end-markets as well, such as Research & Defense, Industrial Technologies and Life & Health Sciences. In 2017, the company generated 57% revenues from semiconductor, 23% from Industrial Technologies, 11% from Research & Defense and 9% from the Life & Health Sciences market.

Innovation: MKS Instruments believes elevated demand for its innovative products and solutions will stoke its top-line growth. In 2017, the company made research & development investments worth more than $130 million. State-of-the-art offerings such as laser products, 3D NAND memory and the latest cloud applications (within semiconductor manufacturing process) are expected to secure sturdier market response in the quarters ahead.

Top-Line Prospects: MKS Instruments expects that elevated sales from the semiconductor, industrial and other advanced end-markets will bolster its revenues in the near future. Especially, the company anticipates that stronger power solutions business will reinforce its semiconductor business. In fourth-quarter 2017, aggregate revenues of this business improved 65% year over year.

Moreover, the company predicts that the Newport Corporation buyout (April 2016) will drive its revenues in the near term.

Also, the company intends to improve its revenues on superior customer relationships.

Per the new operating model (launched on Jan 31, 2018), MKS Instruments estimates to generate roughly $2.2 billion revenues, higher than $1.92 reported in 2017.

Notably, the stocks’ projected sales growth rate for 2018 and 2019 are currently pegged at 10.7% and 6.8%, respectively.

Business Growth:  MKS Instruments believes business expansion in high-growth markets will help bolster near-term revenues. In sync with this, the company has implemented a localization strategy in Korea. Since then (2012), the company’s revenues in korea have improved almost a whopping 250%. MKS Instruments is currently applying the same strategy in China. During fourth-quarter 2017, the company stated that its thin-film scribing application secured sturdy response from the Chinese photovoltaic market.

Profitability: MKS Instruments reported better-than-expected earnings in fourth-quarter 2017. This upside was largely backed by improved margin performance in the recently-reported quarter. Adjusted gross profit margin during the quarter expanded 130 basis points year over year on the back of greater operational efficacy.  

Per the latest operating model, the company predicts that its adjusted operating margin for 2018 will lie in the 26-28% range.

Nonetheless, the company believes enactment of the Tax Cut and Jobs Act in December 2017 will also help boost its profitability, by lowering the effective tax rate.

Deleveraging Balance Sheet: MKS Instruments has implemented a new financial strategy that aims to reduce interest expense by deleveraging balance sheet over the long term. During fourth-quarter 2017, the company finalized voluntary principal prepayments worth $50 million and reduced its interest rate spread by another 25 basis points. Over the last 18 months, MKS Instruments lowered its yearly non-GAAP interest expense by 65% through three re-pricings and voluntary debt payments.

Upward Estimate Revisions: Over the past 60 days, the Zacks Consensus Estimate for MKS Instruments moved up 21.9% to $7.89 for 2018 and 22.3% to $8.62 for 2019.

The positive earnings estimate revisions indicate analysts’ confidence and substantiate the Zacks Rank #2 (Buy) for the stock.

Notably, the stock’s projected earnings per share (EPS) growth rate for 2018 and 2019 are currently pegged at 32.4% and 9.2%, respectively.

Other Stocks to Consider

Some other top-ranked stocks in the same space are listed below:

Kulicke and Soffa Industries, Inc. (KLIC - Free Report) sports a Zacks Rank #1. The company’s EPS is projected to grow 12% in the next three to five years. You can see the complete list of today’s Zacks #1 Rank stocks here.

Entegris, Inc. (ENTG - Free Report) holds a Zacks Rank #2. The company’s EPS is estimated to be up 11.3% over the next three to five years.

Rudolph Technologies, Inc. (RTEC - Free Report) also carries a Zacks Rank #2. The company’s EPS is projected to rise 10% during the same time frame.

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