It's not a name thrown around with the high-flying heavyweights of the semiconductor industry, but Axcelis Technologies (ACLS +1.97%) provides equipment and services critical to those major producers. It has recently placed a particular focus on its Purion line of ion implanters specific to the chips used in the automotive industry, playing an important role in resolving the global supply shortage.
That bet is paying off. The company reported a strong second-quarter earnings result last week, which sent the stock almost 20% higher. Axcelis has positioned itself for growth for the years ahead as the industry continues to expand capacity to meet growing demand. Trading at just 2.3 times forecasted 2021 revenue, I think the stock is a bargain for long-term investors looking for some unique exposure to the semiconductor industry.
A major opportunity
A lack of new vehicle supply has driven soaring prices in the used car market as consumers compromised their purchases. The frenzy links directly to the semiconductor shortage, as automotive manufacturers struggle to get their hands on the more advanced computer chips needed to power our increasingly intelligent cars.
Image source: Getty Images
The rising price of vehicles accounts for up to a third of the entire increase in inflation over the last few months, including the most recent June readout. It comes as domestic auto inventories -- tracked by the St. Louis Federal Reserve -- have plummeted to their lowest level on record.
Axcelis noted that the strength of its Q2 results was especially attributable to demand for its Power Device line, which is focused on ion implanters and product extensions for automotive-related semiconductors. As vehicles trend further toward electrification, they're going to require more advanced chips and the company's attention in this area should yield strong future growth.
The majority of the world's semiconductors are produced in Asia, where tight restrictions took hold during the pandemic and manufacturers lost months of output. Axcelis drew 79% of its Q2 revenue from the Asia Pacific region, and it's likely to continue to play a significant role.
Financial highlights
Axcelis generated $147 million in Q2 revenue, 19% more than the same quarter last year. The strong growth prompted the company to boost its 2021 full-year forecast to $625 million from the $550 million it was estimating in the first quarter.
It reports revenue in two categories: systems, which counts the sale of all new and used ion implanter systems, and aftermarket, which is revenue generated from parts and labor used in servicing them for customers.
In the second quarter Axcelis recognized over $100 million in systems revenue for the first time since 2004, highlighting the appetite of semiconductor producers for increasing manufacturing capacity.
|
Metric |
2019 |
2020 |
H1 2021 |
|---|---|---|---|
|
Revenue |
$342.9 million |
$474.5 million |
$280.0 million |
|
Earnings per share |
$0.50 |
$1.46 |
$1.03 |
Data source: Axcelis Technologies.
The company is also consistently profitable, generating $0.55 in Q2 earnings per share, which was 41% more than the same quarter last year and contributed to a strong 2021 first half result.
At this stage, Axcelis is on track to exceed analyst expectations of $1.95 in full-year earnings per share and quadruple its 2019 result.
Investor takeaways
Axcelis has issued third-quarter forecasts of $170 million in revenue and $0.70 in earnings per share. It would represent 15% and 27% growth respectively on a sequential basis when compared to the second quarter, indicating financial performance is accelerating into the end of the year.
Axcelis shares trade at 24 times the company's $1.77 in trailing-12-month earnings per share, which is a steep discount to the 37.3 times multiple for the iShares Semiconductor ETF. With a market capitalization of just $1.5 billion the company flies under the radar, and doesn't get as much credit as large semiconductor producers despite growing just as fast as some of them.
Advanced computing will continue expanding into more parts of our lives, so demand for more powerful chips isn't going away in the foreseeable future. This company is a great way to invest in the industry as it builds more capacity to meet the needs of the digital world.
