Report
Keith Schoonmaker
EUR 850.00 For Business Accounts Only

Morningstar | No Surprises in Entegris' 2Q Results; Maintaining FVE

Nothing about narrow-moat-rated Entegris' latest results alters our long-term view of the firm. Even though the stock is down nearly 4% at the time of writing, we are maintaining both our $38 per share fair value estimate, as well as our narrow moat rating. For the second quarter of 2018, sales grew 16% year over year on a reported basis, and 4% sequentially. To us, this indicates that Entegris likely gained share during the quarter in its markets since its growth outpaced that of the industries it plays in. Growth was broad-based during the quarter, with double-digit rates of growth across all its divisions. Both advanced materials handling and microcontamination control had strong sales growth of 19% and 20% year over year, respectively, and each also grew 5% sequentially. Even with strong top line figures flowing through, year-to-date revenue is in line with our top line projections for full-year 2018.

Operating margins are also relatively in line with our expectations, even as they fell 180 basis points sequentially. That said, they did grow about 160 basis points year over year. Much of the sequential impact was a result of its margin downturn in microcontamination control. That said, most of the margin impact was due to both currency headwinds and higher research and development spending, which management anticipates moderating in the back half of the year. As for the regions the firm operates in, the Asian markets were a bright spot for Entegris. Year-over-year revenue growth was propelled by Japan (40%), China (37%), and South Korea (28%).

We remind investors that we are dropping analyst coverage of Entegris. We provide broad coverage of more than 1,500 companies across more than 90 industry groups and adjust our coverage as necessary based on client demand and investor interest.

For the third quarter, management expects revenue of $395 million to $410 million, and earnings per diluted share of $0.36 to $0.41. Furthermore, management also completed the acquisition of SAES Pure Gas earlier during the second quarter, a leading provider of bulk gas purification systems. The firm reports it is on track to deliver results exceeding its original targets. The firm paid $355 million in cash for SAES, or approximately nine times 2017 EBITDA including projected synergies.
Underlying
Entegris Inc.

Entegris is a developer, manufacturer and supplier of microcontamination control products, chemicals and materials handling solutions for manufacturing processes in the semiconductor and other industries. The company has three segments: Specialty Chemicals and Engineered Materials, which provides process chemistries, gases, and materials; Microcontamination Control, which provides solutions to filter and purify liquid chemistries and gases used in semiconductor manufacturing processes and other industries; and Advanced Materials Handling segment, which develops solutions to monitor, protect, transport, and deliver liquid chemistries, wafers and substrates.

Provider
Morningstar
Morningstar

Morningstar, Inc. is a leading provider of independent investment research in North America, Europe, Australia, and Asia. The company offer an extensive line of products and services for individual investors, financial advisors, asset managers, and retirement plan providers and sponsors.

Morningstar provides data on approximately 530,000 investment offerings, including stocks, mutual funds, and similar vehicles, along with real-time global market data on more than 18 million equities, indexes, futures, options, commodities, and precious metals, in addition to foreign exchange and Treasury markets. Morningstar also offers investment management services through its investment advisory subsidiaries and had approximately $185 billion in assets under advisement and management as of June 30, 2016.

We have operations in 27 countries.

Analysts
Keith Schoonmaker

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