Notable Calls

Everyone looooves Veeco Instruments (NASDAQ:VECO). Ok, not everyone. Shorts hate it. But the MOCVD equipment maker's hot love affair with the analyst community continues even after the co posted in-line results and slightly worse than expected order guidance last night.

- J.P. Morgan reits their Overweight rating and $75 target noting exceptional margins, large backlog, and strong demand from China offsetting modest weakness in Korea.

- UBS's Stephen Chin reits Buy and $54 price target saying Veeco reported all-time record high margins and EPS and guided higher again in 4Q10 despite disruptive Korean customer shipment rescheduling from 4Q10 into 1Q11 and zero new Korean LED tool orders in 3Q10 and 4Q10.

Veeco guided 2011 sales to be higher than $1B, which suggests 2011 EPS should be higher than $4.74, compared to consensus at $4.67.

Chin estimates Veeco’s net cash balance will be about $600M, which is $14/share, at the end of the Dec-10 quarter, assuming Veeco does not spend any of its net cash on the remaining $168M in its stock buyback program.

- Citigroup reits Buy and $52 target noting that following their Asia trip, they haven’t been overly excited about the near-term set-up here given what is now a transitional phase of order/backlog choppiness. Indeed, with a slightly disappointing order number, the stock is apt to trade off and remain range-bound in the near term especially if they are right about orders being down another ~20% Q/Q in CQ1. More broadly, however, even if China only took ~325 tools in 2011 versus what appears now to be ~550-575 (acknowledging the speculative nature of a portion of shipments into China), Citi estimates VECO still earns ~$4.30 in C2011. This is just slightly lower than Street $4.70.

Combined with ongoing share gains (AIXG continues to struggle w/its new G5) and ~$12/share net cash in CQ4 and ~$15 cash YE2011, this means VECO trades <6x downside C2011 EPS in an industry with excellent longer-term growth prospects. So, while CQ1 should keep the stock range-bound as it looks now, there is more than ample room for multiple expansion given improving visibility into general lighting and better sentiment around the TV market. Adjusting estimates as high margins offset revenue pushout: C2010 EPS from $4.28 to $4.64, C2011 EPS from $5.14 to $5.72.

Positives — 1) Big cash flow provides added flexibility; and 2) share gains should continue given AIXG struggles to ramp G5 (some custs switching back to G4).

Negatives — 1) MOCVD orders look down ~20% Q/Q in CQ1:11; 2) Citi estimates at least 75-80% of tool shipment in CQ4 will be to China which fuels bears’ skepticism; and 3) TV-related orders unlikely to come back much for a few Qs

Notablecalls: Could see a bounce. Order momentum is slowing but the thing has 14 bucks per share in cash & and short interest still stands at 30%+.

Look at what CREE did after posting similar results.

Not exactly a high conviction call but I thought I'd share. Feedback appreciated.

In a beauty contest its not who you think has the finest ass it's who the judges think does. The judges seem to love VECO.