AEIS Stock Study (2-23-23)

I recently did a stock study on Advanced Energies Industries Inc. (AEIS) with a closing price of $92.45.

Value Line writes:

     > Advanced Energy Industries, Inc. develops and produces power
     > conversion and control systems that are used by manufacturers
     > of semiconductors and in industrial thin-film manufacturing
     > processes. The largest customer is Applied Materials,
     > accounting for approximately 20% of total sales in 2021.

Over the last 10 years, this medium-sized company has grown sales and earnings at annualized rates of 16.4% and 17%, respectively. Lines are mostly up while displaying some cyclicality (’14 sales not exceeded until ’17 and ’18 EPS not exceeded until ’22 with ’19 and ’21 showing YOY declines). PTPM over the last 10 years traces an inverse-U shape while trending slightly higher from 2.6% in ’13 to 13.1% in ’22. The last-5-year average is 13.4%, which beats peer and industry averages.

The historical ROE profile is similar, going from 7.7% in ’13 to 20.2% in ’22. The last-5-year average is 17.2%, which is roughly on par with peer and industry averages (both of which show a 2016 excursion below -400%). Debt-to-Capital was zero before ’19 and has averaged 35.6% in the last four years since FASB Accounting Standards Update 2016-02 [requires leases to be recorded on the balance sheet]. This is lower than peer and industry averages. Quick Ratio is 1.93.

CFRA writes, “AEIS’s balance sheet is in a good spot, with $459M in cash, net cash of $69M, and low leverage (debt-to-EBITDA of 1.2x). AEIS has no debt maturities until September 2024.”

I forecast long-term annualized sales growth of 7% based on the following:

• CNN Business projects a 5.6% YOY contraction and zero growth for ’23 and ’22-’24, respectively (based on 8 analysts).
• YF projects YOY 8.8% contraction and 8.4% growth for ’23 and ’24, respectively (8).
• Zacks projects YOY 4.4% contraction and 5.7% growth for ’23 and ’24, respectively (3).
• Value Line projects 8.6% annualized growth from ’21-’26.
• CFRA projects 8.6% YOY contraction and annualized contraction of 0.1% for ’23 and ’22-’24, respectively.

With only one longer-term estimate and unknown recovery mechanics after ’23, I am forecasting a bit light.

I forecast long-term annualized EPS growth of 10% based on the following:

• CNN Business projects a 28.8% YOY contraction and 3.7% contraction per year for ’23 and ’22-’24, respectively (based on 8 analysts), along with a 5-year annualized growth rate of 13%.
• MarketWatch projects 2.9% annualized contraction and 14.2% annualized growth for ’22-’24 and ’22-’25 (9 analysts).
• Nasdaq.com projects 23.2% YOY growth for ’24 (4).
• Seeking Alpha projects 4-year annualized growth of 28.3%.
• YF projects YOY 28.8% contraction and 30.1% growth for ’23 and ’24, respectively (8), along with 5-year annualized growth of 10%.
• Zacks projects 25% YOY contraction and 21.2% YOY growth for ’23 and ’24, respectively (4).
• Value Line projects annualized growth of 12.8% from ’21-’26.
• CFRA projects 27.7% YOY contraction and annualized contraction of 3.1% for ’23 and ’22-’24, respectively, along with 3-year CAGR of 18%.

The four longer-term estimates average 16%. With 12.8% being the low end of the range, I’d like to use 12% but I’m going even lower since ’22 was up 39% YOY (especially given a sales growth projection of only 6%).

My Forecast High P/E is 22. Over the last 10 years, high P/E has ranged from 14.8 (’15) to 49.2 (upside outlier in ’19) with a last-5-year average (excluding the outlier) of 26.2. Four out of the last 9 years have high P/E less than my forecast.

My Forecast Low P/E is 12. Over the last 10 years, low P/E has ranged from 8.3 (’16) to 27.7 (’19) with a last-5-year average of 16.7. Four out of the last 10 years have low P/E less than my forecast.

My Low Stock Price Forecast is $64.30 (default): 30.4% beneath the previous close and 4.7% less than the 52-week low.

The dividend history is only two years with Payout Ratios of 11.4% and 7.5%. I am forecasting 7%.

These inputs land AEIS in the BUY zone with an U/D ratio of 3.4. The Total Annualized Return (TAR) is 15.8%.

TAR would be a stellar return for a medium-sized company, but margin of safety (MOS) determines whether I can believe in that or need to settle for PAR (using Forecast Average, not High, P/E) 10.1% as my future expectation.

Looking at Member Sentiment (MS), out of only 22 studies over the past 90 days (my own excluded), projected sales growth, projected EPS growth, Forecast High P/E, Forecast Low P/E, and Payout Ratio average 9.6%, 16.2%, 22.8, 13.5, and 5.4%, respectively [MS is really buying into increasing profit margins (EPS growth > sales growth)!]. My forecasts are lower for all inputs except Payout Ratio. Many people don’t think the dividend will continue. Value Line projects an average annual P/E of 18, which is just below MS (18.2) and slightly above mine (17).

My Low Stock Price Forecast is in line with MS ($64.13). Overall, MOS seems robust in this study.

AEIS is a competitor of MKSI on which I have previously done a First Cut. If I can believe in the semiconductor recovery [yes!], then I can definitely believe in this stock.