When the healthcare industry is looking for a safe and efficient way to produce and distribute vaccines to fight a global pandemic, turning to a semiconductor industry processor may not be the first solution. .
But when asked a similar question about how the gaps in advanced process control environments (like vaccine production) in healthcare can be filled by a company that focuses primarily on industry. semiconductors, Entégris (NASDAQ: ENTG) John Lynch said, “We have served customers in semiconductors and other highly complex manufacturing environments for over 50 years, making us well suited to meet some of the similar needs for yield and purity. with the pharmaceutical industry. “
It was this kind of Lynch thought process that led Entegris to invest in itself, dedicating $ 10 million to processing assemblies in 2020 and designating an additional $ 30 million for that year.
The gap that Entegris helped close during the pandemic, and continues to invest, is in keeping the purification of medicines at an optimal level throughout the process – from freezing through transport to final delivery. As part of this investment, the company intends to add 200 employees this year to support its new efforts, bringing the total number of employees to around 6,000.
It’s not as if the company is starting from scratch, however, in its attempt to increase production in the pharmaceutical market. Where Entegris has been able to have a positive impact is in response to the needs of the fight against COVID-19. Entegris stepped in to produce large sterile plastic bags used for culturing vaccine cells. In doing so, the company was able to help fill another gap left by the limited supply of bags.
It doesn’t hurt that Entegris CEO Bertrand Loy is no stranger to the pharmaceutical industry, having held numerous positions for Sandoz Pharmaceuticals (now Novartis). He also sits on the board of directors of the manufacturer of solutions for the life sciences Harvard Biosciences.
What will come
Looking at the future potential of Entegris, there is a lot to like. The first quarter financial results were positive and the company expects continued growth in the second quarter. It also takes care of investors by paying quarterly dividends.
In the first quarter of 2021, Entegris achieved sales of $ 513 million, up 24% year-on-year. One of the drivers of increased sales has been the strong demand for its high-purity Aramus bags, which have been used for the distribution and storage of COVID-19 vaccines. This bodes well for continued investment and planned expansion in the pharmaceutical market.
Meanwhile, the company’s core business in the semiconductor market is growing amid a chip shortage that has negatively impacted the production capacity of many companies in industries such as automotive and electronics. Some expect the chip shortage to last until 2023, but that could mean short-term tailwinds for Entegris.
A company like Entegris can take advantage of the shortage and high demand as manufacturers seek to increase chip production. With the acceleration of production, specialized companies will need to manage the stages of purification, protection and transport of materials used in the manufacturing process. Because of this, the company recently said it expects to outperform a market growth rate of 13%, and updated its 2021 outlook to reflect a sales growth rate of 17% to 19%. , replacing the previous estimate of 11% to 13%. , which corresponded more to the semiconductor market.
What this means for investors
If the company’s expectations are right, investors shouldn’t have to wait long to see these signs of growth. The company expects second-quarter sales of around $ 540 million, which would represent a 31% year-over-year increase for the quarter.
For investors who love a business established in the growing semiconductor market, expanding its reach into markets such as pharmaceuticals, and able to respond to the need to fill gaps caused by unforeseen circumstances, Entegris matches these characteristics.
It is not yet known whether a $ 40 million investment will materialize, but the prospects for the company are bright. In addition to an estimated sales growth rate of 18%, surpassing the market, projections suggest that the advanced process control market for pharmaceuticals is expected to grow at a compound annual rate of 9% over the next five years. . If you add that to the expected compound annual growth rate of 9% for the semiconductor process control market – a growth of $ 3 billion – over the same time period, that makes Entegris an intriguing addition to any wallet.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.