Thursday, August 23, 2007

Verigy (NASDAQ:VRGY): Primed for a pullback?

Couple of firms comment on Verigy (NASDAQ:VRGY) after the Automated Test Equipment player reported its FQ3 results last night:

- Banc of America notes Verigy's (NASDAQ:VRGY) October guidance was modestly better than their estimate due to SoC strength, while July Q bookings came in lighter as memory softness impacted orders. More importantly, the 'beat and raise' story of the last few quarters was absent.

While the stock could be under pressure near term due to lack of positive catalysts, the firm thinks this presents a LT buying opportunity. They think VRGY's product strength has enabled them to gain share in both the SoC and memory markets.

While the topic of a share buy-back has been brought about numerous times, management was non-committal on the amount or timing. BAC believes the right amount of cash to run the business is about $100-$140M. Firm thinks VRGY could announce a share buy-back after the end of their fiscal year and they expect it to be in the $100-$150M range. Company has roughly 340,000 share holders due to sale of Agilent's stake to Agilent shareholders last year and the buyback could help consolidate the shareholder base.

Slightly lowering their FY08 GAAP estimate from $2.14 to $2.07. Reiterates Buy while taking tgt to $32 from $34.

- Cowen notes VRGY reported FQ3 consistent with their "in -line" pre-announcement a week ago prompted by a free fall in the shares that caused many to ask if something was wrong fundamentally. Shares (pressured by forced fund redemptions) jumped after the announcement. FQ4 guidance was in line however mgmt. did indicate that memory test demand is weakening consistent with reports from others. Especially given lumpy order patterns by memory mfgs. visibility is very low.

VRGY continues to execute well in a choppy environment that may get even more challenging as it appears that demand for memory testers is beginning to weaken. FQ4 looks relatively stable on the memory side but mgmt acknowledges that visibility is very low especially given the speed with which customers often change their minds. While the firm is mindful of better flash pricing and new applications for NAND etc., they remain somewhat cautious on memory ATE demand in the ST.

Notablecalls: I was surprised to see VRGY down only $0.50 in after hours action given the lack of upside on guidance and bookings. Note that VRGY has been a serial beater in the past. I think the stock is primed for a fall.

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