Should Investors Book Profit on this Capital Goods Stock- MKSI

Jan 18, 2022 12:00 AM PST | Team Kalkine
Should Investors Book Profit on this Capital Goods Stock- MKSI


MKS Instruments, Inc.

MKSI Details

MKS Instruments, Inc. (NASDAQ: MKSI), a global provider of technologies that enable advanced processes and improve productivity. It also provides services relating to the maintenance and repair of its products, installation services and training.

Why should Investors Sell?

  • More Leveraged Company: The company’s debt to equity ratio is 0.30x which is quite higher than the industry median of 0.23x. Further long-term debt to total capital is 22.8% in Q3FY21 which is higher than the industry median of 13.4% making the company more leveraged.
  • Risks pertaining to Acquisition of Atoech: The company is exposed risks to complete its acquisition of Atotech, which will help the company to repay its debt and increase cash flow. The company does not have experience which may put it to significant additional liabilities, the risk of litigation relating to the Atotech acquisition, the risk that disruption from the Atotech acquisition materially and adversely affects the respective businesses and operations of MKS and Atotech.
  • Stable Revenue and Decreased Gross Margins: Net revenue of the company in Q3FY21 is USD 742 million, a sequential decrease of 1% from USD 750 million in Q2FY21, and a year-over-year increase of 26% from USD 590 million in the Q3FY20. The gross margin of the company in Q3FY21 is 47% which is lower than Industry median of 53.3%.

Valuation Methodology: Enterprise Value/EBITDA Multiple Based Relative Valuation

Source: Analysis by Kalkine Group

MKSI Daily Technical Chart as on date January 14, 2022 (Source: REFINITIV)

Stock Recommendation:

MKSI’s stock price has surged 2.47% in the past nine months and is currently leaning towards the higher-band of the 52-week range of USD 199.44 to USD 138.70. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is 62.208. We have valued the stock using the EV/EBITDA multiple-based relative valuation methodology and arrived at a target price of USD 153.98.

Considering the company's growth prospects, ongoing disruption in acquisition, current valuation, and technical indicators, we believe the decent business fundamentals are adequately reflected at current trading levels. Hence, we recommend a "Sell" rating on the stock at the closing price of USD 180.69, up 3.91%, as of January 14, 2022.

* The reference data in this report has been partly sourced from REFINITIV.

* All forecasted figures and industry information have been taken from REFINITIV.