- Piper Jaffray is upgrading TER to Overweight from Neutral while raising their price target to $13.50 (prev. $11.50).
Positioned to outperform the group. Piper believes that during the downturn Teradyne has significantly expanded its market opportunity. They believe that this will enable TER to significantly outperform the semiconductor equipment group. Firm estimates that TER has increased its SAM by 40% - 50% since the beginning of 2008. TER acquired NexTest in January 2008, entering the flash memory and low-speed DRAM markets. The company also entered the DRAM market with an internally developed tester targeted at the DDR3 market. Memory test was about a $1.7 billion market in 2007 and bottomed at $300 million in 2007. They expect memory test to see a strong recovery in 2010 to $600 million. TER purchased Eagle Test, expanding its footprint in the analog and discrete test markets by $300 to $400 million. The analog test market is about a $100M market in 2009 and should also grow to ~$200M next year. Finally, the company entered the Hard Disk Drive system test market. The company expects to see $30 - $50 million in HDD test revenue in 2010 with an addressable market of $150 to $200 million. Piper believes the company is working on adding Seagate as a customer.
Reduced cost structure will drive strong earnings growth during upturn. While TER has significantly expanded its addressable market, the company has also reduced its operating expenses. Piper thinks this combination will drive strong earnings growth as the recover unfolds over the next couple of years. As a result of the company's cost reductions, its target model of 15% profitability can now be achieved on $275 million quarterly revenue, down from $345 million.
Adjusting rating to reflect their conviction on the name. Piper notes they have been looking for an opportunity to upgrade TER since the company's strong Q3 report. Unfortunately, they missed much of the pull back in the shares. While they have missed some of the near term move, they believe that TER is one of the best positioned mid cap semiconductor companies for the current upturn. They are adjusting their rating to reflect that belief.
Introducing 2011 estimates. Piper is are raising their CY10 numbers slightly on slightly higher gross margin assumptions and introducing their CY11 estimates.
- Barclays is reiterating their Overweight rating on TER and raising their price target to $13 (prev. $12).
Firm believes 4Q09 is on track supported by strength in SOC including EGLT and a pickup in memory, offsetting lower HDD. Overall, they model revs of $265M (guide $255-270M, cons $266M) and EPS of $0.17 (cons $0.16) with risk to upside.
Barclays expects roughly flattish orders at ~$290M suggesting BTB of 1.1 and ending backlog of $360+M, the highest level in 8 quarters.
But the real near-term key to story is that SOC/memory strength should cont and enable flat to better revs despite a falloff in HDD in the Mar Q. Their checks suggest EGLT will grow in 1Q followed by cont'd strength in memory (read NAND) and core SOC. We now model revs of $275M (cons $266M) and led by improved mix, they see GMs increasing Q/Q by ~150bps, driving new EPS est of $0.18 (cons $0.10).
Est Changes - CY10 $1.18B/$0.85 (cons $1.13B/ $0.58) and CY11 to $1.3B/$1.10 ( $1.28B/$1.07).
Notablecalls: Piper's price target is the new Street high (albeit by a hair). Some of the more sexier Semi Equipment names likes Varian Semi (VSEA) broke to new 52-week highs last week which should add some fuel to TER's fire as well.
Texas Instruments (TXN), Teradyne's largest analog test customer indicated last week they were seeing strong demand. That bodes well for Teradyne's Q4 numbers.
I think TER will trade $10+ today with $10.25-10.50 range not out of the question. I suspect this one is headed to new 52-week highs.