On Monday, Entegris Inc (NASDAQ:ENTG) stock received an upgrade from a Citi analyst, shifting the rating from Neutral to Buy. Alongside this upgrade, the price target was also raised to $130.00, an increase from the previous target of $119.00.
The decision to upgrade is based on Citi's Phase 3 sector stock-picking framework, which currently favors consumables or wafer starts stocks over original equipment manufacturer (OEM) and components markers.
The analyst highlighted that Entegris has successfully addressed prior concerns regarding gross margins following the acquisition of CMC. The company's gross margin (GM) has rebounded to a range of 46%-47%.
While acknowledging near-term headwinds from KSP and the Colorado fab, the analyst noted the company's potential to further expand gross margins due to higher volume and a better mix of products.
Entegris is considered a defensive play in the current Phase 3 market by the analyst, as its business model tends to be less cyclical compared to the whole wafer fabrication equipment (WFE) market. Approximately 75% of Entegris' revenue is unit-driven, positioning the company to take advantage of leading-edge growth anticipated in 2025.
The analyst maintained the fiscal year 2024 (FY24) earnings per share (EPS) estimate and increased the FY25 EPS prediction by 5%. This adjustment reflects a growing confidence in the company's market outperformance and gross margin expansion.
The new price target of $130.00 is based on a 30x price-to-earnings (P/E) ratio applied to the forecasted 2025 earnings per share (EPS), compared to the previous 29x ratio. This valuation also takes into account a 3-year average P/E ratio of 27x, indicating the potential for margin expansion.
In other recent news, Entegris Inc. reported strong second quarter results, with sales reaching $813 million, marking a 10% increase from the previous quarter and a 6% rise year-over-year. The company also announced a preliminary award for up to $75 million to support the construction of a new manufacturing facility in Colorado, with sales expected to commence in the latter half of 2025.
In addition, Entegris recently acquired CMC Materials, valued at $5.7 billion, a move expected to add a strategic chemical mechanical planarization slurry and pad global franchise to the company's portfolio.
Analysts from CL King and Mizuho have maintained a positive outlook on the company, with CL King maintaining a Buy rating, while Mizuho upgraded the company from Neutral to Outperform. However, BMO Capital Markets adjusted its stance on Entegris, lowering its price target while maintaining an Outperform rating, following a softer third-quarter outlook.
Entegris has also expanded its board with the addition of Mary Puma, a semiconductor industry veteran and former president and CEO of Axcelis Technologies (NASDAQ:ACLS), Inc. These recent developments highlight Entegris' strong performance and potential for future growth in the semiconductor industry.
InvestingPro Insights
Following the upgrade by a Citi analyst, Entegris Inc (NASDAQ:ENTG) presents a mixed bag of opportunities and challenges according to InvestingPro data and tips. The company's market capitalization stands at $16.71 billion, and despite a high P/E ratio of 90.54, which signals investor optimism about future growth, the adjusted P/E ratio for the last twelve months as of Q2 2024 is somewhat lower at 63.59, suggesting a potential normalization of valuation. Importantly, the PEG ratio, which combines the P/E ratio with expected earnings growth, is at 0.96, indicating the stock may be reasonably valued in terms of growth.
InvestingPro Tips highlight that Entegris is trading at a high earnings multiple, yet it is also noted for its high shareholder yield and liquid assets that exceed short-term obligations, which may attract investors looking for financial stability. Analysts have tempered their earnings forecasts for the upcoming period, with 11 analysts revising earnings downwards, which could be a point of consideration for investors. Nevertheless, Entegris is predicted to remain profitable this year and has shown profitability over the last twelve months.
For those interested in a deeper dive into Entegris' financial health and future prospects, InvestingPro offers additional tips that can provide further guidance. Currently, there are 10 more InvestingPro Tips available that can be accessed for Entegris, offering a comprehensive view of the company's performance and potential investment opportunities.
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