Cognex Corporation (CGNX), Danaher Corporation (DHR): Why You Should See The Benefits In This High Quality Growth Play

Many technology companies promise growth in the distant future, but Cognex Corporation (NASDAQ:CGNX) is starting to deliver on its potential right now. The company is the world leader in machine vision systems used in capturing and analyzing data from automated manufacturing processes. With the stock up over 52% in the last year, it’s time for investors to look at more closely at this growth play.

Cognex starts to deliver

Every assembly line manufacturer or logistics operation needs to monitor production processes thoroughly, and Cognex’s machine vision systems offer the ideal answer to this problem.Its systems help to ensure assembly line quality control and, insure that the plant is working at optimal efficiency. Cognex Corporation (NASDAQ:CGNX)’s growth opportunity is to increase penetration of its systems within manufacturers’ processing plants.

In addition, the company has been trying to expand out of its core end-markets like automotive, and into less cyclical verticals like pharmaceuticals, logistics, beverages, and food. The good news is that its largest core end market (automotive makes up around 25% of its factory automation business) is doing relatively well this year. Furthermore, Cognex is starting to see some large orders coming in from its targeted growth areas like logistics and emerging markets.

Logistics and emerging markets

The company has long looked at the logistics market as a potential growth area, and its latest second-quarter results came with the announcement of a large order from a major logistics firm, such as UPS or FedEx. In previous conference calls, Cognex’s management was keen to highlight that the logistics companies tend to take time to assess new technologies. However, the latest conference call saw company officials take a more bullish tone:

“The customer we reported winning the large order from is one of many significant customers we expect to have in that market. I would say it was the first breakthrough, but we expect more orders from that customer but perhaps, more importantly, from other large players in that market to come over the next quarters”

Cognex Corporation (NASDAQ:CGNX) has discussed logistics as being a $250 million market opportunity, and any orders here will obviously help to generate interest in the broader $1 billion ID-products market that encompasses sectors like retailing and packaging. To put this into context, Cognex’s revenues for 2012 were around $324 million.

With the global manufacturing center of gravity shifting toward emerging markets, regions like China are going to become increasingly important for companies selling industrial solutions. Indeed, within its key factory automation segment (78% of revenues), Cognex reported that $10 million (or nearly 15%) came from China. With its factory automation sales to China growing at 41% in the quarter, it’s fair to assume that China’s contribution will get bigger in future quarters.