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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank -- Ignore unavailable to you. Want to Upgrade?

To: Jerry Olson who wrote (107593)	7/14/2000 7:05:04 AM
From: puborectalis	Respond to of 120523

ENTG...." With the introduction of larger (300 mm) wafers and smaller components, the semiconductor industry is becoming even more efficient. However, the progress is also making the process even more fragile. It takes about 6 weeks to produce 25 wafers and any damage to those wafers may represent costs upwards of $1 million. Enter Entegris which makes products for the storage, transport, processing, and protection of wafers throughout the entire manufacturing process. The firm also makes products which store, mix, and distributes the extremely hazardous chemicals used in fabrication. The firm was formed in ’99 with the merger of Fluorware and Empac which trace their histories back almost 35 years. So while the company is new in its present form, it is also a seasoned operation. The firm also has a 26.8% stake in Metron NV, a 11/19/99 IPO, which distributes semiconductor equipment and accounts for about 14% of Entegris’ revenues. It also has joint ventures in South Korea and Japan. Like most firms in the semiconductor industry, it is highly cyclic. Only recently has the industry begun to rebound from a trough. And like most of the industry, it has a considerable international exposure (47% of 6mF’00 revenues) with a heavy Taiwan exposure. Performance has been biased by the industry cycle and the integration of the merged companies. However, with the industry rebound both revenues and earnings are increasing sharply. On a pro-forma basis, between FY’98 and FY’99 (8/31) revenues declined by 9.4% reaching $242 million with a 38.8% gross margin and a 2.4% net margin. Between 9mFY’99 and 9mFY’00 (5/31) revenues rebounded by 43.8% reaching $247.7 million with a 46.5% gross margin and a 14.3% net margin. However, this rebound was boosted by a $5.4 million pre-tax gain from the Metron IPO. In the latest quarter (ending 5/31) revenues were advancing at a 50.2% rate reaching $91 million with a 48.5% gross margin and a 13.5% net margin. These improvements have been directly related to increased plant utilization sparked by the industry rebound and by operating expense savings following integration of the merged firms. Using the 3QFY’00 (5/31) as a basis, the pro-forma, fully diluted 12 month EPS is estimated in the $0.73 range. At the preliminary price range of the offering this suggests a P/E in the 18-21 range. This is very low for an IPO. This sector is highly competitive and includes both foreign and larger more diversified firms. Pure play comparable firms are limited and may not reflect actual valuation possibilities. For those firms identified, valuations have been modest. Competitors Asyst Technologies and Peak International both recently traded in the lower half of their 52 week ranges. Pre-offering demand is reported to be waning and has dropped from very heavy (Street Scoop: 4 stars) to moderate (Street Scoop: 2 stars). This firm is positioned as a key “nuts & bolts” supplier of essential products for semiconductor makers. These products have recognized tangible value to customers and the firm enjoys an established reputation. It is also poised to benefit from the sharply rebounding semiconductor industry and associated market valuations. However, the firm is cyclic so the length of the rebound is limited. It is also being increasingly challenged by competitors in Japan. Given the overall industry valuation surge, the firm’s profitability, and the relatively low pro-forma P/E ratios, a warm initial reception is expected (e.g., 30+%) followed by aftermarket stability. However, a stronger than expected reception may be followed by near term erosion. "