Electro Scientific Industries A 'Turnaround Story,' Says Stifel

Electro Scientific Industries, Inc. ESIO could stand to benefit from market trends that are boosting demand for flexible printed circuit boards as well as expansion into the growing HDI market, according to Stifel. 

The Analyst

Patrick Ho of Stifel initiated converage of ESI with a Buy rating and $36 price target.

The Thesis

Utilization of flexible circuits has picked up significantly in recent quarters and continues to be a strong driver of the company’s outperformance, Ho said in a Wednesday note. (See the analyst’s track record here.) 

"We believe ESI is a turnaround story that has favorable secular trends that can provide long-term growth" within a cyclical industry, Ho said. 

Continued growth in flexible circuit revenue could be unsustainable — and the company may be reaching an inflection point, the analyst said. 

“We want to clearly acknowledge that this business is very cyclical, and we are likely at a near-term peak in new system buys.”

Though the PCB sector could be nearing a peak, ESI is also making efforts to tap into other key markets with its core technology and new product introductions, including the high-density interconnect arena, which the company is targeting with its nViant product.

If ESI successfully expands into the HDI market, it could capture significant upside as the market ramps up growth, according to Stifel. 

“We believe the HDI market can grow 5-10 percent over the next several years, driven by growing usage in multiple markets like smartphones, aerospace and even medical equipment," the analyst said. 

Price Action

At the time of publication, ESI was trading up 6.66 percent at $20.99. 

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