When the healthcare industry is looking for a safe, effective way to produce and distribute vaccines to battle a global pandemic, turning to a processor from the semiconductor industry may not be the first thought for a solution.
But when asked a similar question about how gaps in advanced process control environments (like vaccine production) in healthcare can be helped by a company that focuses primarily in the semiconductor industry, Life Sciences Chief of Entegris (NASDAQ:ENTG) John Lynch stated, "We've been serving customers in semiconductor and other highly complex manufacturing environments for over 50 years, and that makes us well suited to address some of the similar needs around yield and purity with the pharmaceutical industry."
It's that type of thought process from Lynch that led Entegris to invest in itself, putting $10 million toward processing assemblies in 2020 and designating an additional $30 million for this year.
Image source: Getty Images.
The building blocks
The gap that Entegris helped fill during the pandemic, and continues to invest in, is that of keeping the purification of drugs at an optimum level throughout the process -- from freezing, through transportation, to final delivery. As part of that investment, the company intends to add 200 employees this year to support its new endeavors, bringing the total number of employees to about 6,000.
It's not as if the company will start from scratch, though, in its bid to scale up production in the pharmaceutical market. Where Entegris has been able to have a positive impact is in response to needs in addressing COVID-19. Entegris stepped in to produce large sterile plastic bags used for growing vaccine cells. In doing so the company was able to help fill another gap left by limited bag supply.
It doesn't hurt that Entegris' CEO, Bertrand Loy, is no stranger to the pharma industry, having held numerous positions for Sandoz pharmaceuticals (now Novartis). He also serves on the board of life science solution manufacturer Harvard Bioscience.
What's to come
In looking at Entegris' future potential, there is a lot to like. First-quarter financial results were positive, and the company is expecting continued growth into the second quarter. It also takes care of investors by paying out quarterly dividends.
During the first quarter of 2021, Entegris reported sales of $513 million, up 24% year over year. One of the drivers of the increased sales was strong demand for its trademark Aramus high purity bags, which were used for COVID-19 vaccine distribution and storage. This bodes well for the planned continued investment and expansion in the pharmaceutical market.
Meanwhile, the company's primary business in the semiconductor market is experiencing growth in the midst of a chip shortage that has negatively impacted production capacity in many businesses in industries such as automotive and electronics. It is expected by some that the chip shortage may last into 2023, but this could mean near-term tailwinds for Entegris.
A company like Entegris can benefit from the shortage and high demand because manufacturers are looking to ramp up production of chips. With ramped up production will come the need for specialized companies to handle steps in purifying, protecting and transporting materials used in the fabrication process. For that reason, the company recently stated that it expects to outperform a market growth rate of 13%, and updated its 2021 outlook to account for a 17% to 19% growth rate in sales, replacing the previous estimate of 11% to 13%, which was more in line with the semiconductor market.
What it means for investors
If the company's expectations are accurate, investors should not have to wait long to see those signs of growth. The company is expecting second-quarter sales in the area of $540 million, which would represent a 31% year-over-year increase for the quarter.
For investors who like a company that is established in the growing semiconductor market, is expanding its reach across markets like pharmaceuticals, and is able to meet the need to fill gaps brought on by unforeseen circumstances, Entegris fits these characteristics.
Whether or not a $40 million investment will pan out is yet to be seen, but the company's outlook is bright. On top of a market-beating estimated 18% sales growth rate, 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 lay this on top of an expected 9% compound annual growth rate for the semiconductor process control market -- $3 billion growth -- over that same time frame, it makes Entegris an intriguing addition to any portfolio.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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