Tuesday, November 21, 2006

Calls of Note Part 3

- JP Morgan's Jay Deahna is making another call on Cymer (NASDAQ:CYMI) saying it's an above-average secular growth story driven by its leading-edge lasers that is fueling revenue growth and gross margin expansion. Also, the company has extensive tactical programs underway to drive GM expansion beyond the "mix" effect. Further, Cymer has an improving business model that ranks 6th out of 15 equipment companies in firm's Operating Effectiveness/Wealth Creation (OE/WC) analysis and a high margin service and spares business that comprises roughly 50% of revenues. As such, they see CYMI shares as a solid offensive and defensive story and the likelihood of a C4Q06 upside order surprise by ASML should enhance confidence in solid EPS growth for Cymer in 2007.

Consensus for 2007 EPS is $2.76 vs. JPM at $3.20. Firm expects consensus to rise as their lithography thesis unfolds and immersion gains momentum. They believe consensus underestimates the growth prospects and stickiness of Cymer's revenue potential and gross margin expansion through a steady mix shift to its higher value-add/ASP and higher margin systems. If capital spending declines in 2007, EPS estimates may be high.

Notablecalls: I'd be looking to play CYMI off of the ASML call as ASML is CYMI's largest customer. And you already know what Jay said about units.

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