KYCCF - Cognex Suffering From Blurred Vision As End-Market Capex Trends Sort Themselves Out

2024-07-01 12:45:41 ET

Summary

• Cognex has been struggling due to weak capex cycles in major end-markets, leading to a sharp reset in investor expectations for revenue and margins.
• Key end-markets like auto and consumer electronics remain soft, but semiconductor demand is picking up and logistics demand may have stabilized ahead of slow re-expansion in the coming years.
• Cognex is focusing on developing new markets for its machine vision products through initiatives to expand its salesforce and product portfolio, and long-term automation demand is underpinned by worker shortages.
• A long-term revenue growth rate of 13% to 14% (or 9% from the last peak) and mid-20%'s weighted average free cash flow margins are not conservative assumptions, but can support owning the shares.

It’s been a tough stretch for Cognex ( CGNX ) since my last update on the company, as this machine vision company has been hit hard by weak capex cycles across almost all of its major markets. Revenue has declined meaningfully, driven painful decremental margins and a significant reset to sell-side expectations....

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