This company makes machine vision products that capture and analyze visual information in order to automate manufacturing tasks. It beat analysts’ estimates by seven cents in the last quarter, and recently closed above its 50-day moving average.
Cognex Corporation (CGNX)
From Canaccord Genuity Research
We are upgrading shares of CGNX to BUY from Hold ahead of what we expect to be a resumption of large orders in 2016. While another negative estimate revision could come for Q1 (we are modeling negative seasonality based on China in contrast with consensus for Q/Q growth), we believe large orders should lead to subsequent positive revisions in Q2 as logistics and consumer electronics projects resume following delays in 2015.
Valuation looks attractive on historical basis, indicating a solid point of entry at current price levels. Our estimates are unchanged and our price target is increased to $42 based on multiple expansion we see as likely in anticipation of bottoming fundamentals.
Investment highlights
* Positioned for long term growth: Despite recent weakness and near-term challenges, we remain bullish on secular growth drivers for machine vision and believe that CGNX is poised for long-term growth.
* Bump in the road for large orders: Last year and into early 2015 CGNX benefited from the receipt of large orders. Large orders have recently dried up as customers push out capital spending amidst macro uncertainty. Exiting 2015, any resumption of large orders would likely drive significant upside to expectations on easier comparisons.
* Healthy margin structure: Based on the sophisticated software content incorporated into its products CGNX maintains industry-leading margins. We expect gross margins to be stable throughout the period of macro headwinds, especially following the recent divestiture of the lower-margin SISD business.
* Attractive valuation: Resulting from the recent stock weakness, CGNX is currently trading at attractive multiples relative to the historical average of the past few years. We reiterate our estimates and raise our price target:
* Revenues: Q4/15E reiterated at $95.5M; 2015E reiterated at $460.3M; 2016E reiterated at $461.5M.
* EPS: Q4/15E reiterated at $0.16; 2015E reiterated at $1.18; 2016E reiterated at $1.08.
* Price target: We raise our price target from $33 to $42, which is 6.7x our 2016 revenue estimate of $461.5M on an EV/Sales basis.
CGNX is currently trading at 5.4x our 2016 revenue estimate of $461.5M on an EV/Sales basis and 32.6x on a P/E basis. Net of cash, CGNX is currently trading at 26.3x our 2016 EPS estimate of $1.08.
Bobby Burleson, Canaccord Genuity Research, www.canaccordgenuity.com, 617-371-3711, November 17, 2015