Top Picks 2021: Advanced Energy Industries (AEIS)

01/13/2021 5:00 am EST

Focus: ENERGY

Richard Moroney

Editor, Dow Theory Forecasts

Advanced Energy Industries (AEIS) earns our "Best Buy" rating and is a capital-gains favorite for 2021, notes Richard Moroney, editor of the small and mid-cap focused newsletter, Upside Stocks.

Advanced Energy supplies precision-power products that transform raw electrical power from utilities into highly controlled and usable power for the semiconductor equipment, data-center, networking, industrial, and medical markets.

Both 5G networks and artificial intelligence are driving growth across the company’s markets. Advanced Energy aims to grow earnings at more than twice the pace of revenue. By 2023, management sees earnings per share reaching $7.50 (implying annualized growth of 14%) on revenue of $1.65 billion (5%).

For 2021, the consensus projects relatively conservative profit growth of 9%, leaving room for upside. The shares trade at 17 times estimated 2021 earnings, below the median of 20 for S&P 1500 Index technology stocks.

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Backing up management’s confidence, the company in December initiated a quarterly dividend of $0.10 per share, starting in the March quarter. The dividend will consume just 10% of free cash flow and 9% of earnings, and Advanced Energy suggested there’s ample room for growth in coming years.

Advanced Energy has earmarked 15% of free cash flow for share repurchases, with the remainder going toward acquisitions, debt repayment, and reinvestment in the business. Advanced Energy is a Best Buy.

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