If you read our first report on Cognex then you will know the guidance we gave was xxx. This post updates our position and gives key investment guidance.
The stock is off ~8% after-hours. After 10 Quarters of beats, Q4 was a miss, and guidance was meh. However, we are now buyers. Cognex is off 22% since we published.
What we learned from the quarter
CGNX is not a single horse company.
Apple was 21% of revenues in 2017.
Our bearish scenario was based on 30% of revs coming from Apple in 2017. i.e. the growth is much broader than just Apple and OLED. Which means our 15% downside revenue growth scenario in 2019 is probably too conservative as growth is broad based. (downside to $44)
21% means that non-Apple revenues grew at 40% in 2017, which makes our bullish 25% revenue growth upside scenario seem much more reasonable. (Upside was $93)
Management comments:
"Outside of electronics, the broad factory automation market grew by more than 35%."
Greater China is 14% of revenues (up from 12% last year) grew at 67% yoy. We believe Cognex has a compelling leadership position in China and is way ahead of Keyance. China is a key long term driver.
"So our underlying business in China, excluding large electronics customers which generally I think in what you see aren’t even shown in our China business, right? So our underlying business there is broad, very broad."
On Cobots:
"And Cognex is very well positioned in that market….Certainly I can think of at least two very well-known, perhaps the two most famous collaborative robots where Cognex vision is actually inserted into the arm of the robot to guide and monitor what’s going on with the gripper.”
The most well know Cobot with ~50% share is Universal Robots. We had thought that Cognex was not an option on the universal robot product. Apparently we are wrong... If Cognex now benefits from cobots that is a big deal.
Potential Upside: $93 (+80%): Structural change, 25% revenue growth
Downside: $44 (-15%): Cyclical revenues, but 15% revenue CAGR through the cycle.
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