Orbotech's Slide Not Due to Fundamentals (ORBK)

Jun.30.06 | About: Orbotech Ltd. (ORBK)

As long as I am in Yavne visiting Ormat, I shall walk over two blocks to Orbotech Ltd. (Nasdaq: ORBK), one of the more interesting and financially sound Israeli companies, whose share fell 18% over the past six weeks.

The interesting fact is that in the middle of this slide, on June 13, the company held an analysts' conference, after which the share’s slide only got worse. The day after the conference, HSBC analyst Avshalom Shimei cut his recommendation for the share to “Neutral”. The only conclusion that can be drawn is that analysts were not uplifted by the analysts conference and passed this mood onto investors. Another interesting point is that even before the share began its slide, I saw no announcement to explain it, except for HSBC’s recommendation, which has a strong influence on the markets.

It could well be that institutions knew about HSBC’s recommendation for Orbotech before it was published, but since the recommendation came out a month after the start of the share’s slide, that seems unlikely. Just before the share reached a 121-month peak of $27.25 in early May, the company published its financial report for the first quarter of 2006, and it seems that the financials helped push the share up .

If the circumstances as a whole are examined, the only logical conclusion is that Orbotech fell because its previous climb took it too high, and not for any business reason. The share is now traded at a P/E ratio of 13 for 2006 and 12 for 2007. This is not a high multiple for a company in the semiconductor industry, but neither is it low; but I must reiterate that Orbotech has an advantage on Wall Street over the semiconductor companies it is compared witho. That advantage is that Orbotech makes testing equipment for chip makers; it doesn’t produce processors itself, so it is more resistant to crises and recessions. What interests me is the condition of the company’s new medical equipment division.

Published by Globes [online], Israel business news - www.globes.co.il - on June 28, 2006
© Copyright of Globes Publisher Itonut (1983) Ltd. 2006. Republished on Seeking Alpha with full permission.