Entegris (NASDAQ:ENTG) could be a Value Play amongst Semiconductor Stocks
BOSTON – For investors looking for a solid long in the semiconductor industry generally gravitates towards the big names such as Intel (NASDAQ:INTC) or Qualcomm (NASDAQ:QCOM). However a little, only $ 1.3 billion in market capitalization, company called Entegris (NASDAQ:ENTG) should be getting their attention. Entegris specializes in contamination control and advanced material handling for the industry where it holds solid share in core markets and with the advent of more advanced chip fabrication processes the company’s customers should require even more filtration equipment.
According to the company’s financial statements, about two thirds of its revenues come from contamination control that includes the sale of capital equipment for filtrations and the replacement of consumables and filters. Other competitors include Pall (NYSE:PLL) and Donaldson (NYSE:DCI), and while both companies are bigger, Entegris has carved out a solid reputation for itself in the market.
Customers include Micron Technology (NYSE:MU), Samsung (KS:005930), and Taiwan Semiconductor (NYSE:TSM) and it is estimated that the Engtegris’ share of the semiconductor gas/liquid filtration market is about 30 percent, roughly the same as Pall and ahead of rivals such as Polypore (NYSE:PPO), Parker Hannifin (NYSE:PH) and Donaldson.
Historically, sales have closely correlated to semiconductor fabrication spending on the capex side and wafer starts on the consumables side it would appear that Entegris has developed new process/technologies to help the company break out of the industry’s cyclicality. Foremost, among this trend is the single-wafer clean system which is being utilized by Lam Research (NASDAQ:LCRX) and Dainippon Screen (TOKYO:7735). At the same time, the company has been advocating the use of its existing technologies in an increased array of industries including, photovoltaics, LEDs, and displays – a move that should benefit from production growth in these markets.
Furthermore, the company has become a pioneer in Microenvironments business (more than 20% of sales). Microenvironments hold and carry wafers between various process steps, reducing the likelihood of damage or contamination.
While the company’s current guidance is disappointing, this is in line with guidance from competitors and the move towards single-wafer clean could bolster sales forecasts over the next five years to low double-digit growth. Several valuation methods point the company being undervalued by as much as 25 percent, and this could represent an opportunity for investors as the semiconductor industry is set for a spending rebound in 2014.
Shares of Entegris closed at $ 9.95 on Friday, just off its 52-week high set at the end of May.