Despite the well-publicized problems in Europe these days, it’s not too early to start ferreting out bargain investments that have been marked down due to their exposure to the region. One such company is Rofin-Sinar Technologies (RSTI).
Headquartered in Plymouth, MI and Hamburg, Germany, Rofin-Sinar is one of the world’s largest manufacturers of laser and laser systems. Its products range from single laser-beam sources to highly complex systems, with power ratings ranging for ultra-low wattage up to multi-kilowatts, and cover the spectrum of wavelengths.
These lasers are used for cutting, drilling, welding and materials surface treatment, offering exceptionally precise manufacturing standards, in many cases providing production solutions that are otherwise impossible to achieve. And new applications for the lasers are being found all the time.
The company serves a diverse range of industry groups making products from meticulous designs at high throughput speeds and demanding few defects. More than 40 percent of Rofin’s sales are from the machine tools industry. Applications include automotive engineering, aircraft construction and shipbuilding. Lasers for the production of consumer electronics, such as LEDs, semiconductors and photovoltaics used in solar panels, represent a third of Rofin’s business. The balance of the company’s equipment sales go a range of high- and low-tech uses, from medical and dental devices to jewelry engraving to flexible packaging to fabric cutting.
The company is relatively small with a market capitalization of around $560 million, but its reach is global. Some 46 percent of its revenue is derived from Europe (primarily Germany). Asia is the source of another third of Rofin’s sales, with North American making up the balance. China, manufacturer to the world, has been the greatest source of growth for the company in recent years, and given the boom in machine tools, solar and electronics industries there, China should continue to play an important role for the company going forward.
Rofin has an installed base of more than 42,000 laser units, which thanks to service work and replacement parts for those units is an important source of recurring revenue for the company, accounting for more than 25 percent of overall sales.
The company’s sales have been clipped in the past two quarters. Management blamed new product orders from Asian machine tool and electronics customers being pushed out later in the year rather than actual cancellations, as well as the weak European economy, for the shortfall. Rofin expects full-year sales in the range of $550 million to $570 million, down 6 percent (using the guidance mid point) from fiscal 2011. The stock has likely more than discounted the impact of this slowdown, however, and is trading at little more than one times sales.
The company still has a strong order backlog and there’s ample reason to be optimistic that analysts will need to increase their forecasts for the company as the year rolls on. China’s economy has slowed somewhat, but remains robust, for instance. The U.S. economy, meanwhile, continues to improve, albeit slowly, which should also benefit Rofin. Specific industries that are perking up and should add to Rofin’s bottom line include automotive, electronics and semiconductors.
We expect the company to produce annual profit gains in the low to mid teens for the next several years, which should ultimately translate into a powerful advance for the battered stock.
