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Courtesy of Cognex
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Industrial Technology Providers
Zebra Technologies
and
Cognex
profit declared on Tuesday. Both companies beat Wall Street sales and adjusted earnings per share estimates. Expectations of growth look good on the surface, but both stocks traded sharply after the earnings release.
The action Zebra (ticker: ZBRA) closed down 7% Tuesday. The Cognex stock (CGNX) has resulted in a 6% loss. And that's good news in at least one respect. It offers investors a chance to invest in the growing trend of industrial automation at a better price.
Of course, no one wishes their stock portfolio decreases in value, but nothing we heard during the conference call has an impact on the long-term growth drivers of one or the other of these companies.
"We performed well and sales grew 9%," said CEO Anders Gustafsson. Barron in a telephone interview. "All business lines have grown and we have increased revenue forecasts."
It does not look like a recipe for a drop in stocks. Gustafsson added: "Asia was our fastest growing region and China had grown 12% in the first quarter."
This is the second time in as many days as a CEO has said Barron that Chinese growth has improved.
TE Connectivity
Terrence Curtin, CEO of (TEL), explained that Chinese orders rose 9% in the first quarter of the year, and that the worst was passed on to the economy.
It is possible that Zebra's shares will be dragged down by Cognex, whose lower stock price is easier to understand. Cognex management forecast sales of $ 195 million in the second quarter, $ 8 million less, or 4% less than what Wall Street was expecting.
Baird analyst Richard Eastman Research report says major consumer electronics orders are not repeated every year, creating a headwind for 2019 [2019] non-indicative weakness of [market] share the losses. "Cognex provides vision systems to assemblers of
Apple
(AAPL) iPhones and other consumer electronics.
Barron wrote positively about Cognex on December 28, when the shares traded at $ 37.71. At that time, industrial shares were down, close to lows of 52 weeks and trading 15 times estimated earnings for 2019, a discount from their historical average. Our Cognex call was not based on evaluation. In December, Cognex shares traded at more than 30 times the estimated profit. The multiplicity of actions is justified, the turnover having increased rapidly. Cognex sales have increased on average by 22% per year over the last three years.
Lower growth would be problematic for a stock whose multiple premium valuation is multiple, but, although distorted, Cognex sales guidance is up. Eastman predicts that the company will generate $ 927 million in sales in 2020, up 17 percent from this year.
Gustafsson also sees no reason for sales growth to slow down. And new catalysts for the adoption of industrial automation technology are emerging. For example, the
Amazon.com
(AMZN) Passes on a Free Day Delivery for Prime Customers Keeping the pressure on retailers for them to adopt the latest technology of warehouse automation. "Strong competition encourages innovation and everyone has to embrace technology," says Gustafsson.
Zebra shares have generated close to 50% a year over the past three years, but they are still trading at less than 17 times the estimated earnings of 2019, which is comparable to other industrial companies. That's why days like Tuesday can be a good thing for savvy investors.
Cognex is more expensive. It trades at 43 times the estimated profit, which is a big bonus for the US industrial sector. But Barron Still believes that Cognex has state-of-the-art technology in a growing field.
Shares that interest investors, whether Zebra, Cognex or another automation company, depend on their type. But regardless of the mix of growth and profit margins for an investor, we believe that the trend towards further industrial automation deserves closer scrutiny.
Write to Al Root at [email protected]
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