NI Earnings: Fine Quarter Doesn’t Alter Our Model As Emerson Deal Draws Near

We maintain our $60 fair value estimate for narrow-moat NI NATI after it reported second-quarter results. Results were solid, and we remind investors that NI is in the process of being acquired by wide-moat Emerson. As such, management didn’t disclose end market information, provide guidance, or hold a call. Our fair value estimate assumes a 100% probability that the deal goes through at the $60 per share offer price. We see no regulatory hurdles to the deal and reiterate that it should be viewed positively by NI shareholders, representing a 40% premium to our stand-alone NI valuation of $43 per share. NI’s shareholders have approved the deal.

Second-quarter sales of $417 million rose 5% year over year and declined 5% sequentially. Sales missed our model, which we attribute to an ongoing downturn in the semiconductor market and a tougher macroeconomic environment affecting NI’s smaller customers. Orders were down 17% year over year, which marks a worsening since the first quarter and shows us that results may have further to weaken.

Non-GAAP gross margin rose 360 basis points year over year and 220 basis points sequentially to 74%, a good level for NI. Non-GAAP operating margin rose 640 basis points year over year to 22%, which reflects NI’s ongoing efficiency measures that we expect to heighten under Emerson ownership.