Key Points
This came several weeks after the company notched a double beat on its second-quarter results.
Its revenue guidance also topped analyst estimates.
Veeco Instruments (NASDAQ:VECO), a rather niche manufacturer of equipment used to make semiconductors and hard disk drives, wasn't very niche in the eyes of many investors in September. A recommendation upgrade by a now-very-bullish analyst earned the company plenty of attention, and its stock became a popular item. Across that summer-to-fall month, Veeco's share price rose by a sturdy 17%. And to me, it still looks inexpensive.
From hold to buy
The person behind the upgrade was Northland's Gus Richard. He pushed his Veeco rating up one peg to outperform (read: buy) from market perform (hold), maintaining his price target of $66 per share.
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According to reports, Richard waxed bullish about what he described as the company's significant order momentum. That would dovetail very effectively with management's prediction that the total addressable market for Veeco's wares is set to soar from $1.7 billion this year to $3 billion in 2030.
The analyst also believes that one advanced chip manufacturing process in which Veeco specializes, ion beam deposition (IBD), is proving to be popular in the semiconductor industry. Such cutting-edge manufacturing solutions will help Veeco widen its gross margins, Richard believes.
On a more cautious note, the pundit warned that input costs are rising for Veeco, and it might not have the space to raise prices on its existing backlog of work.
Encouraging fundamentals and guidance
Going into September, it wasn't all that hard to be optimistic about Veeco's future. After all, in the previous month, it reported those estimates-topping quarterly results. Revenue grew by 16% year over year to $193.5 million, beating the consensus analyst estimate of barely over $180 million. Net income not under generally accepted accounting principles (non-GAAP, or adjusted) only increased marginally, to $21.8 million ($0.33 per share) from $21.5 million. Yet this was more than sufficient to beat the consensus forecast of $0.28 per share.
Better, management guided for substantial annual growth in all of 2026. Revenue is forecast to land at $780 million to $810 million for the year, which is far above the average analyst estimate of under $764 million (it also well exceeds 2025's $664 million). The company adjusted earnings per share (EPS) guidance came in under the $1.62 pundit consensus, at $1.36 to $1.61. However, that anticipates at least a slight improvement over last year's $1.33 per share.
I've always been partial to niche companies operating in high-growth segments. Veeco's results have been choppy and up-and-down at times, but I think the current build-out of artificial intelligence (AI) makes it a valuable supplier now and across the proximate future. I'd flag it as a buy on that potential, and its currently modest (under 15) forward P/E. However, we should remain somewhat wary of the company's seeming inability to consistently post meaningful growth rates.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.