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Tuesday, February 27, 2018

William Blair & Company initiated research coverage of Novanta Inc. (NOVT $54.00), a global supplier of photonics, vision, and motion control solutions to OEMs in medical and advanced industrial markets.

Analyst Brian Drab forecasts earnings to grow at a low-double-digit rate, with potential upside from accretive acquisitions; he estimates earnings per share of $1.58 in 2017, $1.90 in 2018, and $2.16 in 2019.

“Novanta has an established reputation as a premier supplier of photonics, precision motion and optical control solutions, and medical grade technologies,” Drab said. “The company holds a top-two share position in most of its niche markets and technologies, and new product development and innovation are integral to the company’s growth strategy. From 2012 to 2014, Novanta thoughtfully realigned the portfolio to focus on applications in markets experiencing secular growth, such as 3-D printing, advanced laser material processing, DNA sequencing, endoscopy, robotic surgery, and warehouse automation. The realignment has resulted in a portfolio with reduced cyclicality and volatility that we expect to grow at a mid- to high-single-digit rate.”

Drab continued, “Novanta’s well-respected brands and reputation for innovation have contributed to long-standing OEM relationships, a key competitive advantage. Almost all of Novanta’s products are customized to some degree, and Novanta is generally the sole supplier in most applications across all of its business lines. Once Novanta’s components are designed into an OEM system, there are significant barriers to subsequent supplier changes, and its products are included on customer platforms that have long life cycles. New products also help Novanta increase its penetration and market share with OEMs, strengthening customer relationships and increasing the chance of future design wins.”

William Blair is a premier global boutique with expertise in investment banking, investment management, and private wealth management. We provide advisory services, strategies, and solutions to meet our clients’ evolving needs. As an independent and employee-owned firm, together with our strategic partners, we operate in more than 20 offices worldwide.*

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*Includes strategic partnerships with Allier Capital, BDA Partners, and Poalim Capital Markets.

William Blair or an affiliate does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. This report is not intended to provide personal investment advice. The opinions and recommendations herein do not take into account individual client circumstances, objectives, or needs and are not intended as recommendations of particular securities, financial instruments, or strategies to particular clients. The recipient of this report must make its own independent decisions regarding any securities or financial instruments mentioned herein.

William Blair or an affiliate is a market maker in the security of Novanta Inc.

William Blair or an affiliate expects to receive or intends to seek compensation for investment banking services from Novanta Inc. or an affiliate within the next three months.

Officers and employees of William Blair or its affiliates (other than research analysts) may have a financial interest in securities of Novanta Inc.

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Current Ratings Distribution (as of 2/26/18)

Coverage Universe
Outperform (Buy): 65%
Market Perform (Hold): 33%
Underperform (Sell): 1%

Inv. Banking Relationships*
Outperform (Buy): 22%
Market Perform (Hold): 7%
Underperform (Sell): 0%

* Percentage of companies in each rating category that are investment banking clients, defined as companies for which William Blair has received compensation for investment banking services within the past 12 months.

The compensation of the research analyst is based on a variety of factors, including the quality and accuracy of research, client feedback, contributions to other firm departments, competitive factors, and firm profitability.


Stock ratings and valuation methodologies: William Blair & Company, L.L.C. uses a three-point system to rate stocks. Individual ratings reflect the expected performance of the stock relative to the broader market (generally the S&P 500, unless otherwise indicated) over the next 12 months. The assessment of expected performance is a function of near-, intermediate-, and long-term company fundamentals, industry outlook, confidence in earnings estimates, valuation (and our valuation methodology), and other factors. Outperform (O) – stock expected to outperform the broader market over the next 12 months; Market Perform (M) – stock expected to perform approximately in line with the broader market over the next 12 months; Underperform (U) – stock expected to underperform the broader market over the next 12 months; not rated (NR) – the stock is not currently rated. The valuation methodologies include (but are not limited to) price-to-earnings multiple (P/E), relative P/E (compared with the relevant market), P/E-to-growth-rate (PEG) ratio, market capitalization/revenue multiple, enterprise value/EBITDA ratio, discounted cash flow, and others. Stock ratings and valuation methodologies should not be used or relied upon as investment advice. Past performance is not necessarily a guide to future performance.

The ratings and valuation methodologies reflect the opinion of the individual analyst and are subject to change at any time.

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