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Update Aixtron (AIXG)
03/02/2011 3:52 pm EST
On March 1, Aixtron (AIXG) delivered both great earnings for the just completed year and a very convincing description of what comes next—even more growth.
The company makes metal organic chemical vapor deposition (MOCVD) equipment for the semiconductor industry. Companies use Aixtron’s equipment to deposit the thin layers that make up the silicon semiconductors at the heart of LED screens, lasers, solar cells, mobile phones, computers, fiber optics and more.
Not a bad set of markets.
The German company reported revenue of 784 million euros for 2010. That’s more than two-and-a-half times 2009 revenue of 303 million euros. EBIT (earnings before interest and taxes) margins expanded to 35% from 21% in 2009.
And more revenue at higher margins turned into an increase in net income of 330% to 193 million euros, from 2009 net income of 63 million euros.
Orders grew during the year by 102% and the company finished the year with an order backlog of 275 million euros. That’s 35% higher than at the end of 2009.
Management seems very comfortable with 2011—but still very conservative in its projections. Aixtron expects to see revenue of 800 to 900 million euros—that’s revenue growth of 2% to 15% for the year. EBIT margins will stay at 35% for the year. That would produce a 17% increase in net income to 2.21 euros a share or about $3. (The comfort part comes in management’s decision to recommend paying an annual dividend of 0.60 euros per share at the annual shareholder meeting in May. That’s four times more than last year’s dividend and amounts to a yield of 1.9%.)
Now obviously that 17% growth is a big drop from the 330% growth of 2010. Normally in situations like this, you’d only buy the shares if you believed that company guidance was radically low and you’d come up with some extravagantly higher projections to justify a triple digit price-to-earnings ratio.
I do believe that the company’s guidance is low—it has been at just about every point this year—but I don’t have to produce some astronomical growth projections to justify buying these shares. On March 1 Aixtron traded at just 22 times 2010 net income per share. And even accepting management’s projections, the stock traded at just 14 times projected 2011 net income per share.
Stocks in the semiconductor equipment sector often trade at low multiples because the sector is so cyclical. That means when you get a company at the beginning of a growth cycle for the market or where the cycle promises to be longer than is typical, you can buy a lot of growth for a very reasonable price.
Looking at the markets that Aixtron sells into and the plans for capital spending that I see in those markets, I think the company has got at least another two years before any slowdown in orders. I’d put a $65 target price, up from my prior $42, on Aixtron for March 2012.
Full disclosure: I don’t own shares of any of the companies mentioned in this post in my personal portfolio. The mutual fund I manage, Jubak Global Equity Fund, may or may not now own positions in any stock mentioned in this post. The fund did own shares of Aixtron as of the end of January. For a full list of the stocks in the fund as of the end of January see the fund’s portfolio at http://jubakfund.com/about-the-fund/holdings/
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