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National Instruments Looking To 5G, Autos, And New Strategic Priorities To Drive Better Results

Apr. 01, 2021 1:13 PM ETNational Instruments Corporation (NATI)KEYS
Stephen Simpson profile picture
Stephen Simpson


  • Upside in NATI shares is tied to end-market opportunities like 5G and auto tech driving a sustained period of better-than-cyclical revenue growth, as well as achieving sustainably better full cycle margins.
  • Improvements in short cycle end markets will help revenue growth in the near term, as will increased 5G deployments, with the transitions to mmWave holding even more potential.
  • Leverage to auto investments in electrification and autonomous driving is positive, but tempered by exposure to legacy combustion engine-based business.
  • NATI shares look reasonably valued today, with outperformance tied to beat-and-raise quarters that build confidence that the new strategic priorities will drive sustained growth.

The balancing act between past performance and future opportunities is a tricky one, particularly when a company is implementing new business strategies and/or seeing meaningful new end-market opportunities. If you drive solely by looking in the rear-view mirror (focusing only on what a company has been), you’re going to have some problems. If you ignore what’s in the rear-view mirror, you’re also going to have some problems.

Test equipment and instrumentation specialist National Instruments (NASDAQ:NATI) is an interesting case in point. The historical performance is not that exceptional – mediocre revenue growth little better than GDP growth, consistently okay FCF margins but no upward trajectory, and a trailing stock performance record that is pretty lackluster next to the S&P 500, let alone rivals like Keysight (KEYS).

Now the question is whether the future will be different. End-market opportunities like 5G (particularly mmWave) and auto electrification and autonomous driving are meaningful potential growth drivers, but a lot of the business is still linked to general economic cycles (as measured by the PMI). A focus on increased system sales and software should drive better margins, but there’s a lot to prove beyond “should”. Allowing that National Instruments certainly has room to surpass my expectations, I think the shares are at best reasonably priced today.

An Improving Near-Term Outlook

Fourth quarter results were better than expected, and while there are still going to be some seasonal headwinds in the first quarter of 2021, the overall outlook has improved here relative to the start of the year (before National Instrument’s previewed better fourth quarter results).

Perhaps most importantly, orders rose 7%, reversing a run of negative numbers. System-level orders rose 13%, and both the semiconductor and aerospace / defense / government businesses saw double-digit order increases. While “Portfolio” orders were up low single-digits (a catch-all bucket for the various industrial, electronics, academic/research, and other markets the company serves), auto orders

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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