Brooks Automation Unlocks Value With Business Split

Brooks Automation To Split Into Two Public Companies 

Brooks Automation (NASDAQ: BRKS) emerged as a play on the “fourth industrial revolution” for us over the last year or so. The company operates in two segments servicing the semiconductor and life sciences industries. Its automated products, production systems, and services are crucial to both industries and the business results tell the tale. In fact, the company has decided its two segments are doing so well it’s time for them to operate on their own. The split should be completed by the end of the year and will leave shareholders with not one but two investments with secular tailwinds to drive them. 

"Record level revenue in the second quarter is yet another proof point of the strength and continued momentum of our Life Sciences and Semiconductor Solutions businesses," commented Steve Schwartz, President and CEO. "While today's separation announcement reflects years of strategic investment and innovation, we believe that the Life Sciences and Semiconductor Solutions businesses are now of size and scale to operate and benefit from their own standalone structures. Looking ahead, we see strong demand in both businesses supporting continued acceleration as we enter the second half of our fiscal year."

Brooks Automation Sails Past The Consensus 

Brooks Automation’s 2nd quarter revenue and earnings sailed past the analyst’s consensus estimates with ease. The only negative in the report is a miss in GAAP earnings driven by the impact of import tariffs that did little to slow earnings growth. But, moving back to the top line, the results are excellent and drove a substantial improvement in both GAAP and adjusted earnings. So, the $287 million in consolidated revenue is the 4th quarter of sequential growth, up 30.5% from last year, and 550 basis points above consensus. The gains were driven by strength in both segments, Life Sciences is up 37% and Semiconductor Solutions 25% and both are experiencing margin gains as well. 

The company’s gross margin improved by 340 basis points to 44.4% on the impact of cost leverage and higher sales. The operating margins improved 400 basis points to 10.6% and helped drive a 124% increase in adjusted operating income. On the bottom line, the $0.32 in GAAP earnings missed by a dime but grew more than 150% from last year with similar strength in adjusted earnings. The adjusted earnings of $0.61 beat by a dime and grew 145% over the past year. Not to shabby and, with demand strong in both segments, we expect to see sequential growth continue well into the next fiscal year. 

Brooks Automation Ups Guidance, Upgrades Are Due Next 

Guidance is positive as well but, in our view, cautious due to the robust demand for semiconductors globally and subsequent move by the industry to increase capacity. The company is expecting Q3 revenue to grow sequentially for the 5th month by 4.5% to 11.5% and produce 37% YOY growth at the low end of the range. Adjusted EPS should be in the range of $0.65 to $0.75 which puts the company firmly on track to beat the full-year consensus EPS estimate in the fiscal 3rd quarter. The takeaway is that analysis upgrades are more than likely on the way. 

The Technical Outlook: Brooks Automation May Be Ready For New Highs 

Shares of Brooks Automation surged more than 9% in early premarket trading to retrace a large loss posted in the prior session. The move may be bullish, it is supported by the fundamental story, but there are some caveats. The first is that price action going into the report looks a little bearish to us and may cap gains in the near term. The second is that the broad market appears to be in a little distress right now and that may also cap gains. Those worries aside, we see this stock moving up to new highs the only question is when. If today’s move can sustain the upper side of the 30-day EMA into the close of the session those new highs will likely come sooner rather than later. If price action falls, however, back below the EMA the stock may remain trapped in its range for the next few weeks to 3 months.