FEIC: Supplying the Picks and Shovels for Nanotechnology
In the 1850s during the time of the gold rush, one businessman realized he could make the same amount of money from the gold boom with far less risk by selling essentials to the miners as opposed to engaging in the risky practice of gold mining like others. Levi Strauss was his name, and went on to amass a fortune of about $163 million in today’s money with his world-renowned blue jeans company remaining in business still today.
About 10 years ago when nanotechnology was becoming hyped throughout the investment community as the next greatest thing, one company that was often mentioned by pundits as supplying the “picks and shovels” to the development of nanotechnology was FEI Corporation (NASDAQ:FEIC). While most of the companies in the now discontinued Merrill Lynch Nanotechnology Index couldn’t even manage to beat the S&P 500 returns over the past ten years, FEI was one of the four companies that did.
About FEI Corporation
FEI Corporation (NASDAQ:FEIC) is a leading supplier of high-resolution microscopes for nanoscale applications and solutions in industry and science. Founded in 1972, the Hillsboro Oregon company has sales and service operations in more than 50 countries with over 2,500 employees worldwide. FEIC’s has a current market cap of $3.84 billion with 2013 revenues of $927 million and strong gross margins of 47.3%. Since their IPO in 1995, the company has returned investors +682% in share price appreciation compared to the NASDAQ return of +405% during the same period.
When thinking about what tools that might be needed in the development of nanotechnology, microscopes immediately come to mind. FEIC sells high-resolution microscopes into a number of different industry verticals, each with high levels of projected growth:
FEIC’s 2013 order bookings were geographically diversified across the globe; USA and Canada (28%), Europe (29%), and Asia Pacific and the rest of the world (43%) with emerging markets making up 50% of all orders. In addition to achieving double-digit revenue growth each year for the past 5 years, gross margins have been consistently improving and EPS grew at a CAGR of 49.7% between 2009 and 2013.
In addition to organic growth, FEIC has also spent $192 million since 2009 in acquisitions. FEIC is also considerate enough to conduct regular share repurchases in order to offset dilution from employee stock awards
A Growth and Value Company???
FEIC has experienced strong growth and is forecasting a high growth potential in the coming years. However, they are also positioning themselves as a value play as well. FEIC shares recently dipped about 20 percent on an earnings miss but at the same time they increased their dividend by 108% giving the company a yield of 1.10%. This dividend of .25 cents per share will now cost the company about $10.5 million a quarter. A common criticism of growth companies that pay dividends is that they should use their earnings to reinvest in the company instead of giving them back to investors. In the case of FEIC, their dividend (.25 cents per share) only represents 40% of their Q1 2014 earnings (.61 cents per share) so the majority of earnings are still being reinvested in the business. The CEO of FEIC made the following statement about their dividend:
With over $500 million in cash and investments and our history of strong cash generation and consistent profits, we believe FEI has the financial strength to invest in the business for continued growth and return substantial cash to our shareholders.
FEIC (NASDAQ:FEIC) may be trying to make themselves an appealing asset for not just growth investors but also “dividend growth investors” who look for strong sustainable dividend growth that will provide a growing income stream that increases well beyond the rate of inflation. Since FEIC started paying a dividend of 8 cents per share in July of 2012, that dividend has more than tripled now to 0.25 cents per share. But is this dividend safe? It is worth noting that in April of 1997, FEIC began paying a dividend of 10 cents per share but then stopped six quarters later right before the market crash of 2000. Regardless of whether or not FEIC is a value or growth company, they are selling tools that enable the development of nanotechnology and with their high margins, geographically diversified revenue streams, strong growth prospects, and solid balance sheet, they would make a good addition to any nanotech portfolio.
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