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Credit Suisse: 4 Ways To Invest In Automation

Credit Suisse: 4 Ways To Invest In Automation

  • Investors may want to consider adding exposure to leading firms within the Automation sector.
  • Credit Suisse analysts suggested investors buy Dassault Systemes S.A. (ADR) (OTC: DASTY), SCHNEIDER ELECTRIC (OTC: SBGSF), SMC Corp (OR) (OTC: SMECF) and YASKAWA ELECTRIC COR (OTC: YASKF).
  • All four names have exposure to automation and are poised to benefit over the long term.
  • In a report published Monday, Credit Suisse analysts Charles Brennan, Andre Kukhnin and Shinji Kuroda offered investors four companies poised to benefit from automation.

    Dassault Systemes: $26 Billion Market

    Dassault is a leading vendor in Product Lifecycle Management (PLM), a software suite that allows clients to speed up new products and simulate scenarios to minimize physical prototyping through the use of automation.

    According to Brennan, Dassault offers above-average medium-growth as IT penetration increases within the manufacturing industry and software vendors increase their total addressable market. The analyst added that the company will see growth through organic product development, acquisitions, geographic and vertical market diversification.

    Brennan continued that the company's total addressable market has expanded to $26 billion from $11 billion over the years and still has room to expand over $30 billion. This will offer the company "significant" prospects for sustained growth and a doubling of its earnings per share over the next five years.

    Related Link: Rubicon Projects Direct Order Automation Business Surges More Than 150% YoY

    Finally, Brennan noted that the company offers long-term investors a sustainable above-average organic growth with "high quality" cash-based earnings and a management team that has historically under-promised and over-delivered.

    Shares of Euronext-Paris listed Dassault Systemes are Outperform rated with a €75 price target.

    Schneider Electric: Specialist In Automated Management

    Schneider is a global specialist in electricity distribution and automated management with 22 percent of its business mix exposed to automated management.

    Schneider initially gained exposure to the industrial software market from its acquisition of Invensys in 2013. According to Kukhnin, the industrial software as a premium growth market segment within Automation is an estimated €800 million opportunity.

    Kukhnin also noted that Schneider's recent merger agreement with AVEVA complements the company with a PLM offering and sets a path for the development of an integrated offering.

    Finally, the analyst is expecting the company to experience top-line compounded annual growth of 3 percent and a margin expansion of 110 basis points to 17.4 percent in 2019 from 16.3 percent in 2015.

    Shares of Euronext-Paris listed Schneider Electric are Outperform rated with a €63price target.

    SMC: One Of The Fastest Growing Areas Of Automation

    SMC is the world's largest manufacturer of pneumatic automation products that are used in assembly and is one of the fastest growing areas in the factory automation industry.

    According to Kuroda, rising global labor costs and manpower shortages in manufacturing, along with an aging population (particularly in Japan) will likely translate to increased needs for companies to invest in automation in manufacturing. These factors, among other global trends, will likely result in the company's global market share reaching around 40 percent within the next seven years – from its current 33 percent share.

    Finally, Kuroda pointed out that the stock has seen downward pressure due to a slowing smartphone and semiconductor global market, a slowdown in the Chinese economy and "receding" shareholder return expectations. However, the analyst is expecting "stable" growth in demand for investment automation, and the company will gain market share when the external climate recovers.

    Shares of Tokyo-listed SMC are Outperform rated with a ¥39,000 price target.

    Yaskawa Electric: Seller Of Industrial Robots

    Yaskawa Electric manufactures and sells servomotors, controllers, inverters and industrial robots.

    According to Kuroda, robotic sales have been hurt by recent macroeconomic "deterioration," especially in China. However, the expansion and increased adoption of robotic orders are boosting sales for the company with "steady" order growth.

    However, Kuroda is looking forward to Apple Inc. (NASDAQ: AAPL)'s capital expenditure announcement in the coming weeks, in which is likely to show a growth in spending related to the next-generation iPhone 7. The analyst also pointed out that another positive development will likely be a stepped-up auto production and "revival" of spending in China for robots used in auto manufacturing.

    Finally, Kuroda pointed out that the company is in the process of improving its costs in hopes of gaining further market share. Accordingly, it will likely see improvements in operating profit and margins starting in the next fiscal year and continuing onward.

    Shares of Tokyo-listed Yaskawa Electric are Outperform rated with a ¥1900 price target.

    Image Credit: Public Domain


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