gs: BRKS (IL/C): Solid CQ4 results and CQ1
guidance; no change to IL/C rating as
customer order momentum is likely to slow
as 2006 progresses
52-Week Range US$19-12
YTD Price Change 35.59%
Market Cap US$766.3mn
Current Yield —
Long Term Growth Rate
EPS Growth Estimate NA
Fiscal Year (ending in Sep)
Brooks reported solid CQ4 results and guidance. Operating EPS (including ESOs) was
$0.00 (Goldman Sachs -$0.05 and the Street -$0.03 (including ESOs)). EPS upside was
driven primarily by higher sales and significantly higher gross margins. CQ4 orders,
excluding the Helix acquisition, were +23% Q/Q vs. guidance for +15%-20% Q/Q. CQ1
orders were guided +10%-17% Q/Q (assuming a full inclusion of Helix in CQ4), similar
to robust order guidance provided by other SPE companies. Importantly, Brooks will no
longer pursue lower profitability new 300mm AMHS business, which we view as a
significant positive. We are raising our below consensus EPS estimates on higher sales
and gross margins: CY06 goes to $0.55 from $0.05 (Street $0.60). No change to our IL/C
rating as we believe order momentum at Brooks? SPE customers is likely to slow in
H2?06 and valuations are rich at 31x CY06E EPS (including ESOs).
Solid CQ4 results and guidance; we view Brooks' decision not to pursue new 300MM
AMHS business as a positive, but we maintain our IL/C rating on the stock as we expect
order momentum at Brooks' SPE customer to slow in H2'06. Brooks reported solid CQ4
results and CQ1 guidance. CQ4 operating EPS of $0.00 was $0.05 above the Goldman
Sachs -$0.05 and $0.03 above the Street's -$0.03 estimate (Goldman Sachs and Street estimates
include ESOs). Upside to EPS was driven primarily by higher revenues and significantly higher than
expected gross margins, which more than offset higher than expected sharecount. CQ4 bookings of
$141M (including 2 months of Helix bookings) exceeded our $130M estimate and were driven by
strength in hardware, as well as service maintenance contract renewals. We would note that
bookings for Brooks' core business increased 23% Q/Q vs. the company's guidance for a 15%-20%
Q/Q increase. CQ1 orders were guided up +10% to +17% Q/Q (assuming a full quarter of Helix
orders included in CQ4 results), which is consistent with the strong order guidance from SPE
companies that have reported CQ4 results in the last few weeks. CQ1 operating EPS was guided
above the Street at ~$0.10 to $0.14 (including ESOs, but excluding restructuring and other charges)
vs. the Street's $0.07 estimate. Importantly, management indicated on its earnings call that the
company will no longer pursue incremental 300mm AMHS business. We view this decision as a
significant positive for Brooks as we had long held the view that the company should exit the
AMHS business, which has low margins and negatively impacts the company's overall profitability.
While Brooks' CQ4 results were robust and CQ1 guidance was solid, there is no change to our IL/C
rating on the stock, as we continue to expect order momentum at Books' SPE customers to slow in
H2'06. To that end, we note that our bottom-up capex model currently stands at +6.5% Y/Y in 2006,
factoring in 2006 capex budget announcements for most of the major semiconductor companies
(excluding UMC and the Japanese companies, which are expected to announce 2006 budgets in
March). In addition, several of the semi companies that have reported in the last few weeks
(including Samsung, Hynix, and STMicro), have commented that 2006 capex is likely to be
front-half loaded, implying that order momentum at Brooks' SPE customers is likely to slow in the
second half of the year.
We note that our order analysis for the front-end SPE companies suggests that at current order
run-rates entering 2006, if capex were to increase 5-10% (or even a more), it would imply at the
very least a slowdown in order momentum as the year progresses and more likely at least one
quarter of a meaningful decline in orders. For example, with orders for Lam Research at ~$515M in
CQ1'06, if orders were flat for each quarter of the year, this would imply Y/Y order growth of 52%,
suggesting that orders are likely to decline as the year progresses. With orders at KLA-Tencor at
~$615M in CQ1'06, if orders were flat for each quarter of the year, this would imply Y/Y order
growth of 34%, and with orders at Novellus at ~$410M in Q1'06, if orders were flat for each quarter
of the year, this would imply Y/Y order growth of 31%, also implying that orders are likely to
decline as the year progresses.
With regards to valuation for Brooks, we believe that the stock is rich at 31x our upwardly revised
CY2006 EPS estimate, including ESOs, ($0.55 vs. our previous $0.05 estimate) and 27x our
CY2006 EPS estimate excluding ESOs vs. the S&P 500 at 16x.
While we prefer to use normalized
EPS to value the stock, we believe the company's current normalized earnings power is difficult to
estimate given the change to the business model post the Helix acquisition and the company did not
generate any meaningful full cycle earnings prior to the acquisition.
Solid CQ4 results. Brooks reported CQ4 operating EPS of $0.00 (including ESOs, but excluding the
amortization of acquired intangible assets and restructuring related charges) vs. the Goldman Sachs
-$0.05 and the Street's -$0.03 LPS estimates. EPS upside during the quarter was driven primarily by
higher revenues and significantly better than expected gross margins (36.2% vs. our 35.3%
estimate), which were partially offset by higher than expected sharecount. New orders of $141M
exceeded our $130M estimate. Excluding Helix, CQ4 orders increased 23% Q/Q vs. the company's
guidance for orders to increase +15% to +20% Q/Q. Legacy Brooks hardware orders increased 14%
Q/Q, with a recovery in software orders largely attributed to the service maintenance contract
renewals. CQ1 orders were guided to $165M to $175M vs. $150M in CQ4 (assuming a full quarter
of Helix orders.) Robust CQ4 orders and CQ1 order guidance is consistent with guidance provided
by the other SPE companies that have already reported earnings.
Raising our below-consensus EPS estimates on higher revenues and margins. We are raising our
significantly below consensus estimates on higher revenues and margins: (1) CY2006 EPS goes to
$0.55 from $0.05
(Street $0.60; FY2006 EPS estimate to $0.39 from an LPS of $0.05); and (2) CY2007 EPS estimate
goes to $0.70 from $0.55 (no Street estimate available; FY2007 EPS goes to $0.67 from $0.43).
Each of the analysts named below hereby certifi.. |
