Veeco Instruments Inc. Up 80%, More to Come on Game-Changing Strategy

Veeco Instruments Inc. (NASDAQ:VECO) Shares Up 80% & More to ComeVeeco Instruments Inc. Could Surge in Restructuring Efforts

The majority of small-cap technology growth stocks have surged from their March lows. That’s certainly the case with semiconductor company Veeco Instruments Inc. (NASDAQ:VECO), a developer of advanced thin film process equipment used for building high-tech electronic devices.

Veeco is currently undergoing a significant transformation by divesting its legacy business and focusing on high-growth segments. This is where the company has to prove itself to investors. Success could see Veeco Instruments stock surge to much higher prices.

VECO stock, like the broader stock market, was crushed during the March selling, but it has rallied 80% since then. Yet it remains 30% below its 52-week high and is down 8.8% this year, so there is plenty of opportunity.

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Chart courtesy of StockCharts.com

Veeco Instruments Inc. is shifting from its legacy low-margin light emitting diode (LED) business to higher-growth areas, such as data storage and extreme ultraviolet (EUV) lithography. EUV enables technology companies to develop next-generation powerful and energy-efficient computer chips.

Success in the potentially game-changing strategy could be the tailwinds for Veeco Instruments stock to stage a major rally.

Why New Focus Could Jump-Start VECO Stock

A glance at Veeco’s revenue picture over the last five years is nothing to get excited about. Revenues fell in 2019 as the company began the process of its business transformation.

Fiscal Year Revenues (Millions) Growth
2015 $477.0
2016 $332.5 -30.3%
2017 $475.7 43.1%
2018 $542.1 14.0%
2019 $419.4 -22.6%

(Source: “Veeco Instruments Inc,” MarketWatch, last accessed July 7, 2020.)

There is no guarantee that Veeco will succeed in its transformation, but, given the stock’s current price, it’s worth a look.

Revenues are expected to rise 2.3% to $429.0 million this year, followed by about 15% to $492.6 million in 2021. Of course, much is dependent on the transformation plan. (Source: “Veeco Instruments Inc. (VECO),” Yahoo! Finance, last accessed July 7, 2020.)

Veeco reported positive earnings before interest, taxes, depreciation, and amortization (EBITDA) in four of the past five years. The hope is that the shift to higher-margin products will aid EBITDA and earnings.

Fiscal Year EBITDA (Millions) Growth
2015 $20.7
2016 -$12.4 -159.7%
2017 $8.6 169.6%
2018 $21.6 150.3%
2019 $5.2 -75.9%

(Source: MarketWatch, op. cit.)

Losses on a generally accepted accounting principles (GAAP) basis are currently the norm. The big loss in 2018 was due to the business shift.

Fiscal Year GAAP Diluted EPS Growth
2015 -$0.80
2016 -$3.11 -288.8%
2017 -$1.16 62.6%
2018 -$8.63 -642.1%
2019 -$1.66 80.8%

(Source: MarketWatch, op. cit.)

Veeco Instruments Inc. managed to report adjusted earnings of $0.05 per diluted share in 2019. There is huge optimism as the consensus calls for Veeco to make $0.67 per diluted share in 2020 and $0.95 per diluted share in 2021. (Source: Yahoo! Finance, op. cit.)

While Veeco shifts its business focus, the company will not be faced with financial hurdles. Working capital is strong and the net debt of around $75.0 million is manageable, especially as the company moves to profitability and potential positive free cash flow.

Analyst Take

Insiders and institutional investors love Veeco Instruments stock. Consider that, over the last six months, insiders bought 224,531 shares and sold none. (Source: Yahoo! Finance, op. cit.)

Furthermore, VECO stock trades at an attractive valuation (if the financial forecasts are accurate). It trades at 14.1 times its consensus estimated EPS for 2021.

If I am right about Veeco Instruments Inc. and its chances of a successful business shift, VECO stock could be considered really cheap at its current level.