Cognex Corporation: Labor Market Beneficiary

seekingalpha04-30

Cognex Corporation continues to face a challenging macro environment, but the long-term opportunity looks increasingly promising.The expanded opportunity created by AI may not be fully appreciated yet...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nCognex Corporation: Labor Market Beneficiary\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-04-30 06:19 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4687312-cognex-labor-market-beneficiary><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Cognex Corporation continues to face a challenging macro environment, but the long-term opportunity looks increasingly promising.The expanded opportunity created by AI may not be fully appreciated yet...</p>\n\n<a href=\"https://seekingalpha.com/article/4687312-cognex-labor-market-beneficiary\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"CGNX","symbol_name":"康耐视科技","start_time":0,"source_url":"https://seekingalpha.com/article/4687312-cognex-labor-market-beneficiary","article_id":"2431820540","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/1339565092/image_1339565092.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2431820540","pubTimestamp":1714429152,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Cognex Corporation continues to face a challenging macro environment, but the long-term opportunity looks increasingly promising.The expanded opportunity created by AI may not be fully appreciated yet","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":[],"viewcount":null,"language":"en","relate_stocks":{"CGNX":"康耐视科技","BK4157":"电子设备和仪器"},"translate_title":"康耐视公司：劳动力市场的受益者","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"CGNX":1},"content_text":"Cognex Corporation continues to face a challenging macro environment, but the long-term opportunity looks increasingly promising.The expanded opportunity created by AI may not be fully appreciated yet, especially given tight labor markets and rising labor costs.While Cognex stock is far from inexpensive, it looks like the stock may have already bottomed, absent further deterioration in macro conditions.   Jian Fan Cognex Corporation (NASDAQ:CGNX) continues to struggle in the face of weak demand, a situation that has been compounded by elevated sales through the pandemic. Given recent inflation data, it also seems likely that the macro environment will remain challenging in the short run. Longer term, there is a large opportunity to drive automation across a broader range of applications, which Cognex is positioning itself to capitalize on through new products and a specialized sales organization. While Cognex's stock already prices in a significant amount of future success, creating downside risk if performance disappoints, the expanded opportunity created by AI may not be fully appreciated yet. Particularly given that tight labor markets are creating an impetus to adopt labor saving technologies. Cognex's share price has been fairly flat since I last wrote about the company, but it is looking increasingly likely that the stock may have bottomed, absent a further deterioration in macro conditions. Market Conditions The pandemic pulled forward spending and investment in areas like logistics and electronics, and many areas of the economy are still adjusting to this. While recent data has suggested that the manufacturing industry may be close to bottoming, PMIs globally are still relatively soft and Cognex’s customers remain cautious. Investment in China has been particularly soft, which has been a drag for many businesses in recent quarters. Cognex’s Greater China revenue was down 28% in 2023 and weakness is expected to persist. Part of this expectation is due to a long-term shift in manufacturing away from China. While this is a drag on Cognex's China revenue, it could benefit the company in countries like India and Vietnam. The current situation is also related to the rapid rise in interest rates in 2022 and 2023, which crushed investment appetite in many parts of the economy. Given that interest rates are currently expected to stay higher for longer, there is a risk that Cognex's performance in 2024 will be weaker than anticipated. Figure 1: US 2-Year Treasury Yield and Manufacturing Survey Data (source: Created by author using data from The Federal Reserve) Aging populations in many developed countries and increased demand for on shoring are contributing to wage inflation, which is likely to be an important growth driver for Cognex going forward. An estimated 35 million people manually perform visual inspection tasks globally, and the capabilities and ease of use enabled by AI could help to automate many of these tasks. Figure 2: Unit Labor Cost Growth for Transportation and Warehousing (source: Created by author using data from The Federal Reserve) In terms of end markets, consumer electronics and semiconductors remain the most challenged at the moment. There is also softness in factory automation across areas like automotive, medical-related, consumer products and food and beverage. Within automotive, increased demand from electric vehicle (\"EV\") battery manufacturers is being offset by weakness across Cognex's internal combustion engine business. Figure 3: Cognex's 2023 End Market Results (source: Cognex) While Cognex’s revenue was down significantly in 2023, around half of this was due to two customers who reduced spend after a period of heavy investment. Cognex believes that it has maintained or gained share with these customers, though. Cognex’s commentary suggests that while the first half of 2024 will remain challenging, conditions should improve later in the year. Cognex expects:  Logistics to return to growth as infrastructure investment plans materialize More modest EV battery growth due to uncertainty around end-user demand and the political environment Improved semiconductor demand An uncertain contribution from consumer electronics.  Cognex believes that large investments in EV battery and semiconductor manufacturing capacity will support future growth, but many of these projects are not yet at a stage where Cognex is benefitting. Cognex Business Updates 2023 was a record year for new product introductions, with Cognex launching 2x more products compared to recent years. These new products are reportedly ramping well, with some amongst Cognex’s most successful products ever. New products help to expand Cognex’s addressable market by introducing new/improved functionality and greater ease of use. There has also been a focus on enabling edge learning. More advanced machine learning capabilities are enabling Cognex’s products to go beyond rule-based vision to perform more human-like inspection. Cognex has been preparing for this situation for many years, through the acquisition of ViDi Systems in 2017 and Sualab in 2019. Cognex is also expanding its sales force so that it can reach underpenetrated customers. This initiative has been enabled by new products which leverage edge AI and provide greater ease of use. The first emerging customer sales cohort recently completed its training and is now actively selling. This was a drag on margins in 2023 but should begin to pay off in 2024. The first cohort is expected to be accretive to operating income on a stand-alone basis in 2024. Over the long-term, this initiative is expected to have operating margins exceeding 30%. Cognex expects to add a second cohort in 2024 and has budgeted an additional $25 million USD of OpEx for this. Financial Analysis Cognex’s revenue declined 18% YoY in the fourth quarter, even with a 3% contribution from Moritex. This figure is skewed by the Q4 2022 period, which benefitted from delayed revenue due to a fire at a contract manufacturer. Adjusting for this, organic revenue growth was around -14% YoY. Cognex expects $190-205 million USD in the first quarter of 2024, roughly a 2% YoY decline at the midpoint. Growth is expected to pick up throughout the year, though, and Cognex remains confident in its 15% annual revenue growth target over the long term. Moritex is expected to contribute 6-8% of revenue in 2024. The initial Emerging Customer cohort is also expected to generate $50 million USD of incremental revenue. Figure 4: Cognex Revenue (source: Created by author using data from Cognex) Cognex's gross profit margins remain under pressure, primarily due to product mix, contribution from Moritex and lower volumes. This situation is expected to largely continue in the first quarter. Cognex also has a strategic logistics project with high upfront costs that is expected to present a 2% gross profit margin drag. New products are expected to be accretive to gross profit margins, as is the emerging customer initiative, although this may take time. Cognex retains its mid-70% gross margin target. Figure 5: Cognex Gross Profit Margin (source: Created by author using data from Cognex) Cognex's operating profitability has deteriorated substantially in recent quarters, driven by operating deleverage and investments in future customer acquisition. For example, Cognex estimates that its emerging customer initiative increased operating expenses by $28 million USD in 2023. Excluding the emerging customer initiative and Moritex, adjusted OpEx would have declined 4% YoY in Q4. Adjusted operating expenses are expected to increase in the mid-single digits sequentially in Q1, driven by Cognex’s emerging customer initiative, higher incentive compensation and Moritex. This likely means a further decline in operating profitability. The emerging customer initiative is expected to add another $25 million USD of OpEx in 2024, although Cognex expects the initiative to breakeven in 2024. Figure 6: Cognex Operating Profit Margin (source: Created by author using data from Cognex) Conclusion Cognex Corporation has a strong competitive position, and its growth is supported by rising labor costs and improving technological capabilities. This should become apparent in the coming quarters, with recent product and sales investments beginning to pay off. While the company's valuation is relatively high, this is supported by Cognex's long-term growth prospects and high margins. Ideally, Cognex's stock would present an entry point closer to $30 USD, but absent further deterioration in macro conditions, it is looking increasingly likely that Cognex's stock has bottomed.  Figure 7: Cognex EV/S Multiple (source: Created by author using data from Seeking Alpha)","kind":null,"is_publish_news":null,"is_publish_highlight":null,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.22.4","shortVersion":"4.22.4","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2431820540"}