Cognex Corporation

CGNX Details

Cognex Corporation (NASDAQ: CGNX) is a leading worldwide provider of machine vision products that capture and analyze visual information in order to automate manufacturing and distribution tasks where vision is required. Machine vision is the technology that gives computers and automation equipment the ability to see. Machine vision products are used to automate the manufacturing and tracking of discrete items, such as mobile phones, aspirin bottles, and automobile tires, by locating, identifying, inspecting, and measuring them during the manufacturing or distribution process

Latest News:

• Quarterly Dividend: On May 05, 2021, CGNX declared a quarterly dividend of USD 0.065 per common share, payable on June 03, 2022, to shareholders of record on May 20, 2022.

Q1FY22 Results:

• Growth in Revenue: The company reported YoY growth of 18.15% in revenues to USD 282.41 million in Q1FY22 (ended April 03, 2022) from USD 239.03 million in Q1FY21 (ended April 04, 2021), attributable to 99% YoY growth in Standard products and services segment.
• Decline in Profitability: CGNX reported a decrease in net income to USD 67.33 million in Q1FY22 vs. USD 69.85 million in Q1FY21.
• Healthy Balance Sheet: As of April 03, 2022, the company had cash and cash equivalents (including marketable securities) of USD 314.74 million and no outstanding debt.

Key Risks:

A significant portion of the company’s products is presently manufactured by a third-party contractor located in Indonesia. Further, certain key electronic and mechanical components, such as integrated circuit chips, are fundamental to the design of Cognex products. Due to the impact of the COVID-19 pandemic and other factors, CGNX has experienced, and may continue to experience, disruptions to the supply of components for the company’s products that have resulted, and may continue to result, in higher purchase costs, delivery costs, and manufacturing delays.

Outlook:

• Q2FY22 Estimates: As of Q1FY22, CGNX expects to generate revenue of USD 265 – 285 million in Q2FY22, along with a gross margin in the low-70% range.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's FY1 trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

Stock Recommendation:

Cognex Corporation has built upon strong fundamentals, strong competitive advantage against the peers from the margin standpoint, business protected through patents and IP rights. The company has track record of 19-year of consecutive payment of dividend, returned USD 1.5 billion of total cash to shareholders since 1981, recorded 14% 10-year revenue CAGR (2011-2021), and invest heavily in R&D to enhance the value proposition of its products, with 13% revenue deployed inti R&D in 2021.

Further, CGNX shares have corrected significantly over the past three months, down ~35% in the same time and mostly tilted towards its 52W Low (52W range (H/L)- USD 92.17/USD 45.66).

Given the recent correction in the stock and from the valuation standpoint, CGNX shares looks attractive at the current trading levels. Hence, we recommend a "Buy" rating on the stock at the closing price of USD 49.07, down ~2% as of May 16, 2022, at 11:08 AM PDT.

1-Year Technical Price Chart (May 16, 2022, at 11:08 AM PDT). Source: REFINITIV, Analysis by Kalkine Group

Technical Levels Summary

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

Note 1: The reference data in this report has been partly sourced from REFINITIV.  

Note 2: Investment decision should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the Valuation has been achieved and subject to the factors discussed above. 

Note 3: The report publishing date is as per the Pacific Time Zone.