Tuesday, November 21, 2006

Calls of Note Part 2

- JP Morgan's Jay Deahna is making a call on ASML Holdings (NASDAQ:ASML) saying they believe consensus is deeply wrong on ASML's 2007 and beyond EPS potential. The likelihood of a positive C4Q06 bookings pre-announcement, based mainly on new customer wins in Taiwan and Japan in early to mid December, should be the next catalyst to start bringing consensus up for 2007. Reiterates OW rating and top pick status on ASML from a near-term cyclical and secular perspective.

ASML provided C4Q06 order guidance or 65 or more units. Firm believes ASML is likely to receive initial volume orders (i.e., new customers) from both Nanya and Toshiba in C4Q06, which should drive overall orders into the 80 unit range, enough for a positive pre-announcement. Feedback from Japan indicates that the Nikon immersion tools are running slow and ASML is likely to establish a decent initial volume position at Toshiba, which needs to place orders now to enter volume production for Flash in the 55nm range using immersion in mid 2007.

In thei view, ASML shares are undervalued and the company's strong business model is not fully reflected in the stock price. ASML shares trade at 13.3x firm's C2007 EPS estimate of EUR1.52/$1.90 (assuming a 1.25x exchange rate) versus group average of 14.6x, a discount that they believe is unwarranted.

Notablecalls: This call was actionable yesterday. If indeed you decide to play it, keep it on a tight leash.

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