Tuesday, October 17, 2006

Calls of Note Part 1

- Merrill Lynch is raising their 12-month price target on Cymer (NASDAQ:CYMI) from $45 to $59 based on 19-20x new 2007 estimate of $3.00 up from $2.80. Cymer is well positioned to benefit from favorable unit/bookings forecasts from its main lithography customers and further operational momentum driving higher 2007 estimates. Firm believes Cymer should continue to outperform even in a modest industry slowdown.

Cymer's dominant market share provides leverage as the mix shift to ArF (>90% share), immersion and double exposure technology drive higher deep-UV units and ASPs. The consumables (service & spares) business (~45% of sales) aids sustainable earnings growth due to the growing installed base and high margins. Increasing operating efficiencies also are resulting in higher margins.

Cymer's direct laser customers have been booking at a rate that implies 5-10 more units/ quarter potential in 2007 than firm's model. Merrill is raising their 2007 sales estimates from $610 million (up 9% Y/Y) to $633 million (up 13% Y/Y) and gross margins from 52.7% to 53.6%. Laser unit shipment estimate increases to 322 lasers for 2007 (vs. 302 previously) up from 298 in 2006. These could prove conservative given Cymer's high market share and improving execution.

Two potential catalysts around the corner:
Cymer could signal an improving outlook when it reports 3Q results on 10/24 after the close given the order trends at its customers. Management is holding an Analyst Day at its headquarters on Nov. 2 and could revise its operating targets upward, while providing more clarity into volume & pricing opportunities for 2007. Merrill believes these two events are potential positive catalysts for the stock.

Notablecalls: CYMI has had a nice run already and while I think the note makes sense I would not overstay my welcome in this one.

No comments: