Is there still upside in Camtek?

After a 185% rise in the share price of Camtek (TASE: CAMT; Nasdaq: CAMT) in Tel Aviv so far this year, does the stock’s current pricing still represent an opportunity? Camtek, which produces inspection equipment for microprocessor manufacturing, has benefitted from the positive momentum in the sector in recent months, with the hype over AI, and has become one of the stars of the Tel Aviv Stock Exchange.

This week, the company, headed by Rafi Amit, announced the acquisition of German company FRT Metrology, which supplies high-precision metrology solutions for the advanced packaging and silicon carbide markets, for $100 million. The deal will add over $30 million to Camtek’s revenue in 2024, and should contribute to its profits after twelve months from the closure of the deal, which is due to be completed in the fourth quarter. Camtek has a current market cap of over $2.5 billion.

Two investment houses that cover Camtek responded to the deal, and see upside in the stock. Alon Sanovsky, head of Israel equities at the investment division of Migdal Group, the semiconductors market can be expected to grow by 20% annually on average in the next few years, “and there are assessments that we are at the height of a super-cycle thanks to the entry of new growth engines such as the automotive industry, mobile (G5 and IoT) and artificial intelligence,” he writes. In addition, he mentions that in the past two months Camtek has received orders for 150 machines costing $1 million each.

Sanovsky also mentions the unprecedented incentives that countries are offering for chip foundries to be built on their territory, in order to avoid being dependent on other countries, amounting to some $66 billion in a year, which he says is a boost to the market.

The risks to investment in Camtek, he says, are an economic slowdown and high exposure to the Chinese market (40% of sales), but the sales in China are not in highly advanced technological areas, and so are not subject to sanctions. Sanovsky rates Camtek “an excellent company in a strong market”. On the basis of the consensus analysts’ estimate, the company is traded at a p/e ratio of 27, which is high for the sector. Sanovsky, however, estimates that within two to three years, earnings per share will exceed $3, in which case the p/e ratio is 20, “and here we are already in a reasonable zone, that is to say there’s a story here that suits long-term investors, and the current pricing prices in optimism about growth rates in the coming years.”

Jefferies is positive about Camtek, giving the stock a “Buy” recommendation with a price target of $67, 18% above the current price on Nasdaq. It says that the acquisition of FRT Metrology is in line with Camtek’s strategy of building a broad portfolio in inspection and metrology in the fastest growing segments of the market – advanced packaging and silicon carbide. Jefferies sees the acquisition contributing $0.10 per share (5%) to Camtek’s profits next year.

According to “The Wall Street Journal”, four analysts cover Camtek with positive recommendations, while three are neutral on the stock. The average price target is $59.3, 4.5% above the current price.

Published by Globes, Israel business news – en.globes.co.il – on September 21, 2023.

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