gs: Brooks Automation, Inc. (BRKS): Solid
CY2Q2006; waiting for capitulation to be
more bullish
52-Week Range US$18-11
YTD Price Change 7.42%
Market Cap US$1.0bn
Current Yield —
Long Term Growth Rate
EPS Growth Estimate NA
What"s changed
Brooks reported CY2Q2006 sales of $186mn (+10% qoq) versus our $180mn estimate
and the Street?s $177mn estimate. Operating EPS (excluding $0.06 in extraordinary
items) of $0.29 compared to our $0.27 estimate and the Street?s $0.26 estimate. EPS
upside was driven by slightly higher sales, gross margins, and other income, partially
offset by slightly higher expenses. CY2Q2006 bookings were $194 mn (flat qoq) versus
our $190 mn estimate, driven by strength in hardware (software bookings were down
qoq). Regarding the balance sheet, Brooks repurchased its $175mn convert during the
quarter, leaving the company with no long-term debt, which we view as a positive. The
company also completed its acquisition of Synetics at the end of the quarter and finalized
its JV agreement with Yaskawa (operations should begin in 9/2006). Management
indicated that CY3Q2006 is expected to be essentially unchanged form CY2Q2006
(excluding Synetics) with sales of about $205mn (including $20M from Synetics) and
EPS of $0.29 versus the Street at $185mn/$0.27. While no explicit order guidance was
provided on the conference call, we estimate that orders may decline about 5% qoq in
CY3Q2006.
Implications
While CY2Q2006 results were solid and we view the resolution of the stock options investigation
as a positive, there is no change to our Neutral rating on the stock as we would like to see
management capitulation for a downturn created by a supply chain inventory build in
CY4Q2005-CY2Q2006 as well as excess capacity in the NAND and MPU segments, which are
likely to drive SPE order declines in 2H2006. We are lowering our CY2007/CY2008 estimates to
$0.50 from $0.70 and $0.60 from $0.65, respectively. While our sales estimates have increased as
we have incorporated the Synetics acquisition into our model, EPS estimates came down due to
margin dilution from the acquisition as well as our concerns about the cycle.
Valuation
There is no change to our $7 12-month price target on the stock, which is based on a 19X multiple
applied to our normalized EPS estimate for the company of ~$0.35.
Key risks
The key risks to our view are: (1) a faster than expected inventory correction, and (2) continued
investments in the NAND and MPU segments. |
