2Q24 Accountability: Right & Wrong
As an analyst we believe it is critical to hold ourselves accountable to our calls and recommendations. Post earnings, we publish a quarterly recap note called Right & Wrong, recapping the quarter, reviewing where we were right and where we were wrong with our companies under coverage and our early thoughts for Q3.
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Bracing For 2H24 Slowdown
We have a more cautious view on the broader macro economy following 2Q24 earnings season where many companies in our industrial tech universe lowered 2H24 growth expectations. Manufacturing growth concerns are largely attributed to high interest rates, slowing consumer spend and uncertainty around the US election. On the positive note, it is almost unanimous that the Fed will begin to cut rates at their September FOMC meeting, which we believe is positive for many companies in our universe selling capital equipment. However, even if rates are cut, we do expect many companies to take a wait and see approach until the election concludes in November. We also believe Q3 is likely off to a tough start with the ISM PMI Manufacturing Index (see below) further decelerating to a YTD low in July and remain in contraction territory in August. That said, many companies we are positive on have sold off post 2Q24 earnings. While we wouldn’t be surprised shares may continue to fall in the near term, investors who have a 2 - 3 year time horizon could be adding to positions at attractive prices.
ISM PMI Manufacturing Index
Source: FactSet
Where I Was Right
Materialise MTLS 0.00%↑ (STRONG BUY): Materialise reported robust Q2 results with record quarterly revenues and profits exceeding consensus expectations, which we anticipated in our 2Q24 earnings preview. In addition to showing growth across all 3 business segments, MTLS showed strong cost controls in the quarter that led to Y/Y margin expansion. We continue to pound the table on Materialise and believe another flawless quarter of execution proves Materialise is one of the most compelling stock opportunities in our universe. Materialise is currently trading at an all-time low valuation despite their ability to continue to grow in a tough macro environment. The company is currently trading at ~5x EV/EBITDA multiple based on 2025 consensus estimates, which compares to the 5-year average of 40x. Furthermore, given all 3 segments returned to growth in Q2 and the new CEO continued emphasis on profitability, we believe Materialise is well on their way to coming in at the high-end of their guidance range. Based on our current forecast, we value MTLS at $15.15 per share, which equates to ~200% upside.
View our latest MTLS notes and full downloadable financial model.
Protolabs PRLB 0.00%↑ (BUY): Protolabs reported mixed 2Q24 results with revenues slightly missing expectations, but strong cost controls allowed the company to beat analyst earnings estimates. However, driven by a worsening macro economic outlook Protolabs provided 3Q24 revenue and EPS guidance that missed consensus expectations. We were impressed with Protolabs ability to grow Y/Y in a challenging operating environment, but were not surprised by the more cautionary demand commentary given our 2Q24 Pricing Analysis indicated price deterioration toward the end of Q2. This aligns perfectly with Management remarks, where they highlighted orders declined through the month of June. That said, we plan to publish our 3Q24 Pricing Analysis in October, but as shown below, we want to highlight Protolabs pricing has started to improve in August, which could suggest improving demand. However, Xometry pricing continues to accelerate at a much faster clip after posting stronger than expected 2Q24 results.
Although we expect growth to be challenged throughout 2024, we remain bullish on Protolabs long-term and believe when growth returns the company will be in a robust position to see strong revenue growth return and translate into stronger earnings growth. We believe the combination of Protolabs Factory and Network business positions the company as a clear leader in the digital manufacturing space. We expect the combination will allow Protolabs to acquire new customers, and more importantly grow wallet share per customer given the company’s internal manufacturing capabilities. We are reiterating our Buy rating as we see 90%+ upside for investors who can wait out the current macro challenges. Protolabs is currently trading at ~8x EV/EBITDA based on 2025 estimates, which is well below the company’s 5-year average of ~20x. Based on our current forecast we value Protolabs at $55.82.
View our latest PRLB notes and full downloadable financial model.
Symbotic SYM 0.00%↑ (HOLD): Symbotic reported mixed FQ2 results with revenues coming in above the Company’s previous guidance and consensus expectations, but higher than expected implementation costs drove lower gross margins and in-turn adjusted EBITDA to come in below Management and Street estimates. Furthermore, Management acknowledged that the Company is focused on improving their deployment process, which will temporarily slow growth. As a result, Symbiotic provided FQ4 revenue guidance, which was 10% below consensus estimates at the midpoint. In addition, driven largely by the FQ4 revenue shortfall, adjusted EBITDA guidance also fell below Street expectations.
As we have been highlighting since our original initiation report, Symbotic is still scaling up deployments, and we believe revenues and profitability may be lumpy given the size of these deployments. Management’s FQ4 revenue guidance has now validated this assumption, and we expect what we believed to be aggressive analyst expectations to come down post FQ3 results. Given Symbotic was trading at ~50x EV/EBITDA based on 2025 estimates we believe the bar was set very high and as we expected this miss has caused shares to trade down 50% earnings. That said, we continue to view Symbotic as a clear leader in the warehouse automation space that has a massive $20B+ backlog driven by Walmart. Management was confident that this was a near term speed bump and revenue growth will accelerate in FY25, coupled with a gross margin recovery. We are starting to view Symobtic as a compelling buying opportunity given Symbotic’s massive opportunity, but for now, we remain on the sidelines. Based on our current forecast we value Symbotic at $25.22.
View our latest SYM notes and full downloadable financial model.
Ondas Networks ONDS 0.00%↑ (BUY): Ondas reported mixed 2Q24 results as extended timelines related to the Class 1 railroad network upgrade and supply chain disruption in their Autonomous business impacted sales in the quarter. However, strong cost controls drove a modestly lower than expected adjusted EBITDA loss. Management was disappointed with their 1st half performance, and highlighted visibility into additional Network purchase orders and deployment plans remains limited for 2024, which does not surprise us. However, the Company sounded very upbeat on their outlook and growth accelerating in 2H24 driven by their Autonomous segment. Ondas has not provided quantitative 2024 guidance, but continues to expect to generate significant revenue growth for the full year. That said, while 2024 and 2025 estimates came down post 2Q24 earnings, analyst current estimates are still calling for revenues to grow 400% to $51M in 2025. While we expect revenues to ramp in 2025, we think current estimates likely remain too aggressive…
While we were a bit more optimistic heading into 2Q24 earnings given insider buying in June, as we highlighted in our preview we expected these large network upgrades and drone deployments will take time and anticipate revenues can be lumpy quarter-to-quarter. That said, we were specifically encouraged with the traction the Company is already seeing with their newly launched counter drone products. Although our biggest concern is additional capital needs, the Company did announce the closing of $4M direct offering on August 30th. We believe Ondas Networks and Ondas Autonomous are strongly positioned in two robust secular tech trends that are both still in the early innings of adoption. Although the Company will need to raise more cash, which could include spinning out the Autonomous business, we believe the stock accretion opportunity significantly outweighs future dilution. Note the Company announced an investor day that will take place on September 12th, and will be focused on the Autonomous business. We expect to hear long term funding plans at this event. That said, we remain buyers of Ondas with a 3 - 5 year horizon. Our robust outlook drives our bullish stance on Ondas shares and price target of $1.66, which equates to ~100% upside at current levels.
View our latest ONDS notes and full downloadable financial model.
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Where I Was Wrong
Xometry XMTR 0.00%↑ (SELL): Xometry announced strong 2Q24 results with revenues and adjusted EBITDA that exceeded both Management and consensus expectations. Furthermore, 3Q24 revenue guidance missed slightly, and adjusted EBITDA guidance was in-line with analyst expectations. Given the strong 2Q24 execution, better than expected profitability and what we believe were very low expectations given poor peer results and economic data shares traded up 40%+ post earnings.
Looking back at our 2Q24 Pricing Analysis, we are not surprised by these results given the robust price acceleration we saw on Xometry’s marketplace through the month of June that has also continued through the month of August. Given the macro headwinds, we applaud Xometry for these strong results and being able to grow their Marketplace revenues 25% in a challenging manufacturing environment. Unlike Protolabs who provided cautionary 3Q24 guidance, Xometry Marketplace continues to flourish and is likely taking share in the low-end prototyping market. We were also impressed with Management’s cost controls, but do not believe this is sustainable. While our 3Q24 Pricing Analysis is looking favorable for Xometry thus far, we remain cautious on the Company’s long term revenue and profitability outlook, as we believe the Company will struggle to expand revenue per active buyer, which declined again Y/Y in 2Q24. We expect these strong results will excite investors, but likely once again inflate profitability expectations. Our bearish thesis remains intact as we believe the Company’s inability to increase revenue per active buyer will force the Company to continue to accelerate spend to grow and underwhelm investors profitability expectations. These all support our bearish stance and $9.34 price target, which equates to ~50% downside.
View our latest XMTR notes and full downloadable financial model.
Tekna TEKNA.OL (BUY): Tekna reported mixed 2Q24 results. While sales in 2Q24 were up 29.7% Q/Q and 1.9% Y/Y, which we believe is solid given macro challenges, the Company’s overall results were lower than Management’s expectations. The lower performance in 2Q24 is driven by lower than expected sales into 3D OEMs due to sluggish new printer growth, as well as lower sales to aerospace and medical customers as customers work off high inventory levels. That said, we believe underlying demand trends for their advanced materials remains robust with material bookings up ~18% Y/Y in the quarter, as well as pipeline building for new systems. To mitigate the near term disruption and impact on profitability, they are taking corrective actions by implementing a new profitability program, which will drive an improvement of $2M in EBITDA in 2H24. Although their full year growth expectation is likely now lower, Tekna reiterated their 2024 guidance, which calls for revenue growth and margin improvements on a Y/Y basis.
While Management was discouraged with their Q2 revenue performance, the Company as well as our view on Tekna’s long-term opportunity has not changed. In-line with almost all of our other industrial tech universe, we were not surprised macro headwinds continue to impact near term results. Given their growing pipeline and order book, we remain confident the Company will grow this year, but are now expecting only mid-single digit growth. Despite lower expected revenues, we believe the Company could reach adjusted EBITDA breakeven or better in 2H24 under the new profitability program. That said, we believe Tekna is in the early innings of a multi-year super cycle as demand for their advanced metal materials and plasma systems grow across applications in 3D printing, consumer electronics, aerospace and medical. In turn, we are confident 20%+ revenue growth will return in 2025 and beyond. We continue to view the near term challenges as an attractive buying opportunity for long-term investors. We would also call out Tekna’s Board of Director acquired 17,000 shares post earnings. We remain strong buyers, and our price target is 15.24 NOK, which equates to 200% upside.
View our latest TEKNA.OL notes and full downloadable financial model.
Cognex CGNX 0.00%↑ (BUY): Cognex reported mixed 2Q24 results with revenues in-line with Management expectations and analyst estimates, as well as strong cost controls drove better than expected adjusted EBITDA. However, Management acknowledged that their view on the macro has worsened in 2H24 causing project and deployment delays, and unfortunately guided 3Q24 revenue below analyst expectations. The macro challenges impacting customer capex spend is largely related to higher rates, a slowing consumer spend, as well as growing election risks. Driven by the more cautionary outlook, shares of Cognex have traded down ~20% since the 2Q24 results.
Although disappointed by Cognex’s Q3 outlook, we believe Managements upbeat tone around logistics and growing opportunity around AI markets, as well as AI applications keeps our long-term bullish thesis intact. Machine vision is a critical getaway that blends the physical world with software, and we believe the rise of AI within manufacturing and distribution environments will directly grow demand for intelligent vision systems globally. We also believe AI will drive adoption across next gen consumer electronic devices, automotive vehicles and semis, which we anticipate will lead to capacity expansion across Cognex’s key verticals in the coming years. Given the more challenging macro, we have taken down our estimates, but still see meaningful upside potential for “patient” long-term investors. In turn, we reiterate our buy rating but lower our price target to $64.41 on our modestly lower outlook.
View our latest CGNX notes and full downloadable financial model.
AutoStore AUTO.OL (BUY): AutoStore reported 2Q24 results with revenues and adjusted EBITDA falling short of expectations as the challenging macro environment has postponed delivery times. Combining the revenue and profit shortfall, with a more uncertain outlook due to the challenging operating environment, shares have traded down ~30% since reporting these results.
We were not surprised by the 2Q24 results given the macro challenges many of our industrial tech company’s have indicated during Q2 earnings, but admit we were a bit more bullish given positive comments from a key global distributor. However, we believe the 2Q24 demand shortfall is purely driven by a timing issue, and not an indication of slowing demand. Given the size of these deployments, we believe it is a normal course of business for sales to be pushed out due to timing and macro factors. However, we believe they will create buying opportunities for long-term focused investors. That said, we remain very upbeat on AutoStore’s long term opportunity as a leader in the quickly emerging warehouse automation space. We believe the company will return to 25%+ growth as macro conditions improve. Furthermore, the company has been able to grow profitably. Driven by ~70% gross margins and lean partner driven operating model, the Company is consistently reporting adjusted EBITDA margins north of 45%. AutoStore is currently trading at 11x EV/EBITDA based on 2025 estimates, which is below our industrial tech comp group (~30x) and their closest public peer Symbotic (~30x). Based on our current forecast we value AutoStore at 26.36 NOK, which equates to ~150%+ upside at current levels.
View our latest AUTO.OL notes and full downloadable financial model.
Nor Right or Wrong
Impinj PI 0.00%↑ (HOLD): Impinj reported solid 2Q24 results, which came in above Managements and Street expectations. Furthermore, Impinj provided better than expected 3Q24 revenue, EPS and adjusted EBITDA guidance. We believe Q2 results and specifically upbeat Q3 outlook were caught as a positive surprise after Impinj’s largest customer Avery Dennison (33% of 2023 sales) provided cautionary commentary to a slow down in deployments across key end-markets one day prior to Impinj’s earnings call. On the contrary, Impinj Management was very upbeat on 2H24 and does not see any slow-down in their key IC end markets. We were impressed with Impinj’s results as they return to their traditional cadence of beat and raise. That said, we believe we are entering a more cautionary period, which is driven by slowing consumer spend. Given Impinj’s key-end markets (Retail and Logistics) are highly correlated to consumer spending habits, we believe there is a chance Impinj could be challenged in 2H24. Given they are trading at 52x EV/EBITDA based on 2025 estimates, we see meaningful downside if results come in short of expectations. We believe shares are fully valued and reiterate our HOLD rating. In the event of a meaningful pullback we would use the opportunity to consider building a position given Impinj’s long term growth opportunity. Based on our current forecast we value Impinj shares at $146.84.
View our latest PI notes and full downloadable financial model.
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