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On Tuesday, Goldman Sachs analyst Joe Ritchie adjusted the price target for Cognex (NASDAQ:CGNX) shares, reducing it to $35 from the previous target of $39, while maintaining a Sell rating on the stock. Currently trading at $33.20, near its 52-week low of $32.41, Cognex maintains a P/E ratio of 54.8x, which InvestingPro analysis indicates is relatively high for the sector. Ritchie's analysis followed Cognex's fourth-quarter earnings, which revealed mixed results across end markets and a soft guidance for the first quarter.
Cognex reported fourth-quarter EBIT of $37 million, surpassing both Goldman Sachs and FactSet consensus expectations by $6 million and $9 million, respectively. The company experienced a stronger-than-anticipated organic revenue growth of 12%, driven by a late-quarter surge in demand, which exceeded Goldman Sachs' projection of 5% growth. InvestingPro data shows the company maintains strong financial health with a current ratio of 3.62x and operates with moderate debt levels. The adjusted gross margins were reported to be nearly in line with expectations at 69.3%, compared to the 69.5% Goldman Sachs had estimated.
The quarter's free cash flow was robust, reaching $49 million versus the $37 million anticipated by FactSet. With trailing twelve-month levered free cash flow of $134 million and a consistent dividend history spanning 11 years, including three consecutive years of increases, Cognex demonstrates strong cash generation capabilities. The company saw continued strength in the Logistics and Semiconductor end-markets. However, the Automotive segment declined by 14% over the year, attributed to softer electric vehicle demand and ongoing production challenges in the auto industry. For 2025, management expects the momentum in Logistics to persist, the decline in Automotive to lessen compared to 2024, and growth in other factory automation markets to align with the macroeconomic environment.
Despite double-digit growth in China during the third and fourth quarters of 2024, Cognex's near-term outlook remains cautious due to competitive pressures. The company successfully met its 2024 Emerging Customer Initiative targets, achieving around 80,000 customer visits and onboarding approximately 3,000 new customers.
Looking ahead to the first quarter, Cognex has guided revenues to be between $200 million and $220 million, with gross margins expected in the high 60% range, consistent with prior quarters. This guidance accounts for approximately $7 million in revenue that was advanced into the fourth quarter, a year-over-year foreign exchange headwind of around $5 million, and an increase in incentive compensations.
In light of these factors, Goldman Sachs has modestly lowered its FY25/FY26 EPS estimates for Cognex by $0.10 each, due to a slower margin ramp-up. The revised price target of $35 implies a 2026 estimated free cash flow yield of approximately 3%.
In other recent news, Cognex's fourth-quarter earnings surpassed consensus estimates, despite a less optimistic outlook for the first quarter due to continued weakness in the Automotive sector, which saw a 14% decline over 2024. Needham analysts have subsequently reduced their price target on Cognex shares to $41 from $47, while maintaining a Buy rating. In contrast, Cantor Fitzgerald initiated coverage of Cognex with an Overweight rating and a price target of $49.00, citing improving demand in key sectors and proactive sales strategies.
Furthermore, Cognex's performance in the Logistics market, which grew 20% in 2024, remains a positive aspect. This growth is partially attributed to a resurgence in demand from a major e-commerce customer. The company's tight operational expense management is expected to help mitigate the impact of the weaker revenue forecast.
Investors are anticipated to approach Cognex with caution during the upcoming Investor Day in early June. The company's management is expected to present the potential of their new AI-enabled machine vision tools at this event. Cantor Fitzgerald's analysis suggests that Cognex is well-positioned to capitalize on the increasing integration of automation and robotics, particularly in the automotive, electronics, and logistics sectors.
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