Teradyne: Attractive After Earnings

seekingalpha11-06

Teradyne Inc is a high-quality tech stock with strong profitability metrics and competitive advantages in the semiconductor materials and equipment industry.Despite a high valuation compared to past ...

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}\n.meta {color:#5e5c6d;font-size:13px;margin:0 0 .5em; }\na{text-decoration:none; color:#2a4b87;}\n.meta .head { display: inline-block; overflow: hidden}\n.head .h-thumb { width: 30px; height: 30px; margin: 0; padding: 0; border-radius: 50%; float: left;}\n.head .h-content { margin: 0; padding: 0 0 0 9px; float: left;}\n.head .h-name {font-size: 13px; color: #eee; margin: 0;}\n.head .h-time {font-size: 11px; color: #7E829C; margin: 0;line-height: 11px;}\n.small {font-size: 12.5px; display: inline-block; transform: scale(0.9); -webkit-transform: scale(0.9); transform-origin: left; -webkit-transform-origin: left;}\n.smaller {font-size: 12.5px; display: inline-block; transform: scale(0.8); -webkit-transform: scale(0.8); transform-origin: left; -webkit-transform-origin: left;}\n.bt-text {font-size: 12px;margin: 1.5em 0 0 0}\n.bt-text p {margin: 0}\n</style>\n</head>\n<body>\n<div class=\"wrapper\">\n<header>\n<h2 class=\"title\">\nTeradyne: Attractive After Earnings\n</h2>\n\n<h4 class=\"meta\">\n\n\n2024-11-06 18:36 GMT+8&nbsp;&nbsp;&nbsp;<a href=https://seekingalpha.com/article/4733604-teradyne-attractive-after-earnings><strong>seekingalpha</strong></a>\n\n\n</h4>\n\n</header>\n<article>\n<div>\n<p>Teradyne Inc is a high-quality tech stock with strong profitability metrics and competitive advantages in the semiconductor materials and equipment industry.Despite a high valuation compared to past ...</p>\n\n<a href=\"https://seekingalpha.com/article/4733604-teradyne-attractive-after-earnings\">Source Link</a>\n\n</div>\n\n\n</article>\n</div>\n</body>\n</html>\n","isBrief":false,"type":0,"news_type":1,"symbol":"TER","symbol_name":"泰瑞达","start_time":0,"source_url":"https://seekingalpha.com/article/4733604-teradyne-attractive-after-earnings","article_id":"2481839605","we_media_id":null,"thumbnails":["https://static.seekingalpha.com/cdn/s3/uploads/getty_images/556415427/image_556415427.jpg"],"rights":null,"url":"https://stock-news.laohu8.com/highlight/detail?id=2481839605","pubTimestamp":1730889418,"sourceInfo":{"source_id":"seekingalpha","name":"Seeking Alpha"},"weMediaInfo":null,"summary":"Teradyne Inc is a high-quality tech stock with strong profitability metrics and competitive advantages in the semiconductor materials and equipment industry.Despite a high valuation compared to past multiples, TER's expected earnings growth and recent sharp price drop make it a buy at current levels.TER's Q3 results showed strong performance, with a double beat on top and bottom lines, driven by Cloud AI demand and record memory revenue.The stock is oversold and at a key support level, presenting a buying opportunity for mid to long-term investors.   Monty Rakusen  Teradyne, Inc.  fell sharply after reporting Q3 2024 earnings on October 23, and this may be a make-or-break moment for the stock. Why do I say this?","collect":0,"end_time":0,"defaultTopTitle":"seekingalpha.com","property":["earning"],"viewcount":null,"language":"en","relate_stocks":{"TER":"泰瑞达"},"translate_title":"泰瑞达：盈利后颇具吸引力","themeId":null,"isJumpTheme":false,"ttsUrl":null,"symbols_score_info":{"TER":0.9},"content_text":"Teradyne Inc is a high-quality tech stock with strong profitability metrics and competitive advantages in the semiconductor materials and equipment industry.Despite a high valuation compared to past multiples, TER's expected earnings growth and recent sharp price drop make it a buy at current levels.TER's Q3 results showed strong performance, with a double beat on top and bottom lines, driven by Cloud AI demand and record memory revenue.The stock is oversold and at a key support level, presenting a buying opportunity for mid to long-term investors.   Monty Rakusen  Teradyne, Inc. (NASDAQ:TER) fell sharply after reporting Q3 2024 earnings on October 23, and this may be a make-or-break moment for the stock. Why do I say this? Because the stock is at a critical support level, technically speaking, and could bounce off that level or completely break down. In this article, I'll analyze TER's fundamentals and valuation after the earnings report, and then I'll talk about the chart. My thoughts on TER are as follows: it is an excellent quality tech stock. It's a key player in a very important industry (semiconductor materials & equipment), and its profitability metrics clearly highlight its competitive advantage. Its valuation is a bit high if you look at its past multiples, but the stock can still see decent returns from here in the next couple of years. However, the question is whether you should buy it after earnings or not. Personally, I initiated a position in TER near the $105 level. Since its valuation is a bit higher than usual, but the stock is down more than 35% from its all-time high, I feel confident holding it after earnings. This is especially true considering the potential for the support level to hold now that the earnings report is behind us. Thus, I rate TER as a Buy. Why is Teradyne so Important? Teradyne was incorporated in 1960 and is headquartered in North Reading, Massachusetts. It designs, develops, manufactures, and sells automated test systems and robotics products worldwide. It operates through four segments: Semiconductor Test, System Test, Robotics, and Wireless Test. The Semiconductor Test segment offers products and services for wafer level and device package testing of semiconductor devices in automotive, industrial, communications, consumer, smartphones, cloud, computer and electronic game, and other applications. This is the main segment of TER at nearly 73% of total revenue. This segment is projected to grow driven by demand for testing high-performance electronics used in AI-enabled servers. The Q3 (YoY) growth was +9%. The System Test segment offers defense/aerospace test instrumentation and systems; storage and system level test systems; and circuit-board test and inspection systems. This is a relatively small segment at nearly 10% of total revenue. This segment is facing headwinds as the demand for Storage Test remains low due to underutilized installed base in HDD and mobile. Sales in Q3 fell by 12% year over year. The Wireless Test segment provides wireless test solutions for silicon validation, wireless module manufacturing, and wireless end device manufacturing under the LitePoint brand. This segment also offers products for edge measurement performance in the manufacturing of connectivity products; IQxstream-5G and IQgig-5G family products to support 4G and 5G technologies; and IQgig-UWB+ for certification and manufacturing test support for ultra-wideband products. This is the smallest segment of the company at nearly 5% of total revenue. This segment is also facing headwinds as the uptake of Wi-Fi 7 in Access Points and PCs is slower than expected. Sales in Q3 fell by 12% (YoY). The Robotics segment provides collaborative robotic arms (cobots), autonomous mobile robots (AMR), and advanced robotic control software for manufacturing, logistics, and industrial customers. This is a relatively medium-sized segment at nearly 12% of total revenue. This segment is projected to grow thanks to a collaboration with Nvidia (NVDA). The latter's AI solutions would enable robots to complete tasks 50 to 80 times faster than today's capability. Other tailwinds include:  low penetration rate the demographics of an aging population, fewer young workers willing to do factory work.  Sales in Q3 grew by 3% year over year. I am obviously bullish on the Semiconductor Test segment and the Robotics segment. Most importantly, TER's main competitor is Advantest (OTCPK:ATEYY) so we're talking about a duopoly. A High-Quality Company TER has many traits of a high-quality company. One of the first things I check for when analyzing a company is if it generates consistent and growing cash flows and if its profit margins are stable or growing. I also check for high returns on capital and revenue growth potential. TER fits the criteria. First, revenue growth is expected to be +4.9% in 2024 and +19% in 2025. Further, we can see that its cash flows have quickly grown over the years. Free cash flow is high also because the firm's Capex is relatively low. That's because it doesn't have to spend money on building fabs like Taiwan Semiconductor (TSM) does. It just creates the equipment that's used to test semiconductor devices, which is a lot less capital-intensive. TER has a free cash flow per share of $2.89 compared to $1 for TSM. Now, take a look at its gross profit margin, which has increased over the years, signaling a competitive advantage, as competitors haven't been able to eat away at profits.   YCharts The company also has a consistently high return on invested capital (ROIC), which is another sign of a competitive advantage. Again, this can partly be attributed to the capital-light nature of the company. Its TTM ROIC comes in at a decent 19.4% and remained above the 15% level despite the 2022-2023 downcycle of the semiconductor industry.   YCharts Historically High but still Reasonable Valuation Looking at the Non-GAAP P/E ratio, you'll see that it has come down recently but is still relatively high compared to the 5-year average which is 28.18x. 33.53x may not seem too high for a company that's expected to see 33% EPS growth next year and 41% growth in 2026, but what you need to realize is that TER is a cyclical company. I assume that's why TER and many other chip companies tend to have lower multiples during downcycles. With AI as a clear tailwind for growth, I don't expect TER stock to return to the 5-year average P/E ratio. If TER can meet earnings estimates for the next two years, it means the stock is actually trading at 24.7x 2025 earnings and 17.47x 2026 earnings. Hence, the valuation does not look high when investors price in the expected growth for the next two years. My price target is $122.96 based on a conservative multiple of 29x expected 2025 earnings per share. To have an additional insight regarding TER's valuation, I will compare the P/S ratio with its main competitor Advantest as well as key players in the industry.   Company P/S   TER 6.05   ATEYY 9.93   KLAC 7.61   ASML 8.67   Click to enlarge As the table above shows, TER has an average 44% upside compared to the above-mentioned companies. Last Quarter Results On Oct 23, TER reported decent Q3 results with a double beat on the top and bottom line: Non-GAAP EPS of $0.90 beats by $0.11 and revenue of $737M (+4.7% Y/Y) beats by $21.4 million. Generally, the market dynamics that were identified in the July earnings call have continued through the third quarter. The ongoing strength of Cloud AI is driving demand in both the SoC and Memory Test markets, and the company's Semi Test business is performing above management expectations. Within Semi Test the memory business delivered record high revenue in Q3 on a strong HBM demand. The SoC business was driven by networking and by vertically integrated producers (VIPs) who are designing silicon for their own use in Cloud and Edge AI applications. Although quarter-on-quarter Robotics revenue was roughly flat, the segment has delivered 8% year-to-date growth despite a worsening industrial macro environment. In my view, the results were decent and don't justify the sharp fall of the stock price. Technical Chart After the Q3 earnings report, TER stock is at a key level. In the chart below, I've highlighted two important levels. First, there's a resistance level at around $127, which is relatively far from the current price. Second, there's a support level near $105, right where the stock is currently. I expect this support level to hold, but it's obviously an important level to watch. TradingView The stock is also oversold, as the 9-day relative strength index stands at 19 and the 14-day relative strength index is currently 26. Risks As with any other investment, there are risks that investors should be aware of. First, TER could fail to reach the expected earnings growth for the next two years. This would eventually lead to an overvaluation of the stock. I don't expect this risk to materialize, given the recovery of the semiconductor industry and the clear tailwinds of TER. Second, there is the risk of the general market. TER has a beta of 1.5, and it would likely witness a sharp fall if the Nasdaq were to plunge. A fellow contributor on Seeking Alpha recently wrote that the current market could be the most overvalued in 40 years. Even if this risk were to materialize, I would still be a buyer at $95 and lower. I am confident that quality stocks like TER can and eventually will recover. Third, there is the risk of rising US China tensions. Tariffs and new export controls surely don't bode well for tech stocks. I am not very worried about it as TER has already started to reduce its exposure to China. Conclusion TER is a high-quality company in an important industry, and it has the potential to generate reasonable returns going forward based on its expected earnings growth. It has decent returns on invested capital due to its competitive positioning and its capital-light nature. Furthermore, its cash flows and revenues have grown significantly over the years, and its gross profit margin has trended higher as well. TER seems overvalued when compared to its own 5-year average. But when you factor in the earnings growth estimates for the next two years, the valuation starts looking much more attractive. When compared to its main competitor and other players in the industry, TER has a decent upside of 44% Nevertheless, there are risks that you should be aware of are: lower-than-expected growth, possible correction of the general market, and rising US-China tensions. I view it as an opportunity to average down rather than altering the investment thesis.  The company's Q3 results were decent and beat both the top and bottom line. After the sharp plunge post Q3 results, the stock is trading at a key support level. Moreover, the stock is oversold. I see this situation as an opportunity for mid- to long-term investors. I believe TER is a Buy.","kind":"highlight","is_publish_news":true,"is_publish_highlight":false,"is_publish_live":false,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"0","news_tag":"analysis","news_rank":0,"symbols":[],"gpt_button":0},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.29.3","shortVersion":"4.29.3","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2481839605"}