November 15, 2017 | 2:16 PM by Jay Kunstman |

Orbotech (ORBK): SD + PCB + FPD = A Growing Pipeline

Headquartered in Israel, Orbotech is a leading provider of process control and process solutions serving the Flat Panel Display (FPD), Printed Circuit Board (PCB), and Semiconductor Markets (SD). The company is a leading provider of automated optical inspection (AOI) and other solutions for the FPD and PCB markets and is a supplier of etch, CVD, and PVD equipment serving the specialty semiconductor devices market (such as MEMS, RF devices, etc.) with a focus on advanced packaging applications.

Per their recent Investor Presentation, here is how revenues are broken down:

Earlier this week, there were unusual buyers of 500 February 55 Calls for up to $2.85, approximately a $142,500 bullish bet. In addition, several members of our chat room were inquiring about the name which made us take a closer look.

On November 1st, the company reported earnings for its third quarter. Here was the breakdown followed by notable commentary from management:

-EPS of $0.91 vs $0.83 estimate – Beat
-Revenue of $245.7M vs $234.2M estimate – Beat
-Revenues increased 17% Q/Q and 20% Y/Y
-Printed Circuit Boards (PCB) segment increased 4% Q/Q and 24% Y/Y
-Flat Panel Displays (FPD) segment increased 9% Q/Q and 27% Y/Y
-Semiconductor Devices (SD) segment increased 43% Q/Q and 10% Y/Y

Semiconductor Devices – Management would say that the underlying growth dynamics of the industry are expected to propel growth for the foreseeable future. “Whether you are discussing the enormous need for sensor for autonomous drive vehicle, miniaturization of components for mobile devices, increased bandwidth modulation provided by RF devices inside geo-communication or the MEMS application for IoT in high-performance computing, the opportunities are just simply stunning.”

Printed Circuit Boards – Management said they achieved another record booking for this division and are starting the fourth quarter with a strong backlog. They would also say that they recorded multiple large sized orders of advanced direct imaging solutions. In addition, during the third quarter, they made significant progress with orders for their diamond system for solder mask application.

Flat Panel Displays – Management would remind investors that there are 3 primary drivers of growth in FPD: Flex OLED, Gen 10 Plus investments and continuous investment in China (As Shown Below). During the quarter, they won a number of flex OLED orders including a large deal with a leading FPD manufacturer. The number of opportunities within their OLED served market continues to grow and they identified about 45 investments in new OLED lines between 2017 and 2019. In Gen 10 plus, they won a major order with another leading manufacturer and the number of opportunities continues to grow.

“The market dynamics underpinning the growth of flex OLED as well as large screen applications and the investment in China give us strong confidence that our unique solutions will continue to drive positive momentum for our FPD business way into 2018 and in addition, we are already receiving orders that will be delivered during 2019.”

Stifel analyst Patrick Ho was out with a post-earnings note saying, “Order rates in the PCB and semi divisions remain at healthy levels, resulting in good near-term visibility, yet the bigger takeaway is the growing pipeline of OLED expansion activity in flat panel, which gives us increasing confidence in the growth outlook even stretching beyond the 2018 timeframe.”

Jefferies analyst Mark Lipacis would say, “We continue to expect ORBK to re-rate higher as investors appreciate the visibility and innovation ORBK is delivering in PCBs (unique inspection + repair), FPD (OLED and 10+G cycle play) and SDD (Fan Out leader, 7nm cycle).”

Oppenheimer analyst Andrew Uerkwitz reiterated his Outperform rating and raised his price target from $42 to $54 and said, “Our bullish thesis on ORBK is unchanged. We expect the company to deliver stable mid-term revenue and profit growth from solid execution, technology, and market leadership, and favorable tailwinds underlying the high-end PCB, flexible OLED, and advanced packaging markets in 2018 and beyond.”

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