MKS Instruments (Ticker: MKSI)

Bought a ~3% position in MKS Instruments, ticker MKSI, at $21.64.

The company has a broad customer base of over 4,000 companies. Many of the industry verticals to which the company is selling are expected to exhibit double digit CAGRs over the next couple years. Customer industry verticals include Semiconductor Equipment and Manufacturers, Data Storage, Solar, Environmental, LED and MEMS, and Life Science. The three business segments are Instruments and Control Systems, Power and Reactive Gas Products, and Vacuum Products - representing about 50%, 41%, and 9%, respectively of revenue.

The company should benefit from President Barack Obama's proposed capital investment tax break, assuming it is passed by Congress. The tax break should encourage businesses to invest in capital, including company products. The company should also benefit from the weaker dollar since it should improve the price competitiveness of its products overseas, where the company realizes about 40% of its revenue.

Management expects to have about $400 million of cash (almost no debt) on the balance sheet (close to $8 per share) after benefiting from a $26 million income tax refund in the fourth quarter.

The consensus revenue and EPS estimates for C2011 are $880 million and $2.61, implying flat growth. This conflicts with management's outlook of successful penetration into new markets and an improving global economy. It also seems quite conservative to me since I believe the U.S. economy likely appears to accelerate over the next few quarters and foreign economies continue to perform well, albeit with greater worries about inflation.  

At a stock price of $21.64, the EV-to-TTM EBITDA is about 4x and the P/E is 8.3x. Both of these appear to price in a more challenging economic environment and/ or miscues by the company. Therefore I believe there is opportunity for both the estimates to increase and the multiples to expand.