Entegris (ENTG) has a defined path to benefit from an improving industry environment, with solid growth in demand and semiconductor capital spending in 2026 and 2027. The company's initiatives to improve its capacity could also result in over $5 in earnings per share in 2027, UBS Securities said in a Wednesday note.

The company has notably underperformed the industry peers over the last 2 years or so, partly because of a poorly timed acquisition and capital expenditure cycle, and also because its business model is reliant more on sector volumes than revenue, the brokerage said.

Presently, the volume portion of the company's business is only operating on half its potential. While demand from foundry/logic has been strong due to artificial intelligence, demand for more mainstream chips for PCs, smartphones, autos, and NAND remains weak, with wafer production still below peak levels, the firm said.

UBS said that AI is expected to drive more of an edge upgrade cycle and even without that, there is significant room for the company to "brute force" larger margins and regain EPS leverage by consolidating manufacturing capacity that was added earlier this decade on high growth expectations.

Semiconductor capex has always been a key indicator for volume. In 2027, UBS expects the company to benefit from larger volumes as the capex for new fabs is put to use and wafer production picks up. This should lead to revenue tailwinds at the same time as Entegris' capacity leads to reduced fixed costs, thus easing underutilization pressure and resulting in notable margin drop-through beginning in calendar year 2027, the brokerage wrote in its note.

This outlook remains strong even assuming some pressure on Million Square Inches, or MSI, from high memory prices. In fact, that scenario could quicken the chief executive's turnaround efforts, the firm said.

If this outlook holds, UBS believes that ultimately it will not take more than $4 billion per year to result in gross margins of more than 50% and an EPS of over $5. For comparison, these gross margins are 6-7% higher than current levels and Street's C2027 estimate is nearly 46%, the brokerage said. It also models revenue growth of 10-11% for 2026 and 2027.

UBS upgraded Entegris to buy from neutral and raised the price target to $145 from $90.

Shares of the company rose over 10% in recent Thursday trading.

Price: 114.65, Change: +10.56, Percent Change: +10.15