Brooks Automation, Inc. Automates Another Buying Opportunity

A Leaner Brooks Automation Falls Back To Support

Brooks Automation NASDAQ: BRKS released its FQ4 results and sparked a 5% decline in share prices. That move, as it turns out, is more a knee-jerk reaction to the news than anything else. The company reported some deeply disturbing figures, disturbing that is until you realize most of them are an apples-to-oranges comparison. Brooks Automation announced the divestiture of its semiconductor automation business earlier in the quarter and the headline figures are all on a continuing operations basis and adjusted for the sale. Digging deeper into the report it becomes clear the company had a strong quarter is on track to continue producing results for investors. 

Mixed Results For Brooks Automation 

Brooks Automation had a good quarter if one impacted by divestiture. The company sold its semiconductor business earlier in the year and it accounts for roughly 60% of net revenue. On a continuing operating basis, the company’s life sciences business posted revenue growth of 26.5% over last year with 24% of that growth organic. The semiconductor unit grew a much larger 49% YOY due to robust demand within the industry. In aggregate, the company reported a 39% increase for the quarter marking the 12th quarter of sequential growth and outperforming consensus by 180 basis points. 

Moving down to the earnings, the news is equally good but clouded by the divestiture. The gross margin shrank by 80 basis points on a continuing operations basis due to materials and labor shortages but, ultimately, the bottom line results are better than expected. While the -$0.30 in GAAP earnings and $0.12 in adjusted earnings both missed the consensus by wide margins the figures aren’t really comparable. The company’s aggregate $0.78 in adjusted earnings is comparable and beats the consensus by a dime. 

Looking forward, the company is expecting revenue and earnings from continuing operations to hold steady going into the 1st quarter of the year. The company guided revenue in the range of $130 to $140 million with adjusted EPS of $0.04 to $0.12. The sale of the semiconductor unit will also bring in about $3 billion for the company, ample funds for reinvestment and growth. 

Brooks Automation Dividend Is About To Change 

Brooks Automation pays a very safe dividend but it is based on results for the combined company. With the larger and more profitable semiconductor unit now out of the picture, the payout ratio on the current distribution is out of alignment. While it is probable the company could sustain the payout at the current rate, it is our opinion that investors should expect a distribution decrease upon the close of the sale. 

The Technical Outlook: Brooks Automation Falls 10% 

Shares of Brooks Automation are down more than 10% from the freshly set all-time high but appear to be confirming support at the short-term moving average. Price action is forming a doji-like candle that reveals both indecision about the downdraft and strength of support at the short-term moving average. Price action may continue to show weakness in the near term but we expect support at the short-term moving average will hold. If support at this level fails, price action may retreat back to the $100 level before finding firm support. Assuming the stock is able to maintain these levels, we would expect to see consolidation and range-bound trading until there is more clarity on the unit sale.