BofA out defending Eagle Test System (NASDAQ:EGLT) after the co guided Dec qtr way below consensus. Firm is cutting their FY07 estimates sharply to $0.78 from $1.15, but still believes the stock screens as a very good value.
Firm believes the earnings power of the stock is clearly evident by the performance of the last two quarters, mid $0.40's EPS per quarter. It delivered $1.56 in earnings for FY'06. In the next up cycle, earnings power should improve, assuming the company is further along in the penetration of new accounts and applications. It is not a stretch to estimate annual EPS power north of $2.00.
EGLT is one of a handful companies in firm's universe that should deliver materially higher earnings in the next cycle. The higher earnings peak and a top-tier financial model reflected in operating margins suggest to them a premium valuation for the stock is warranted.
Even with a 32-40% drop qt-qt in December revenues, gross margins will likely remain in the 60% range. There is no other stock in firm's coverage list whose financial model has this type of resilience.
Notablecalls: The stock closed down 11% at the afterhours. As the stock now becomes valued based rather on potential than current earnings, it reminds me UCTT a while ago when the co used to disappoint investors virtually every qtr, but the stock never got hit seriously. My take is that EGLT will do the same, so we have a potential bounce play here.