Dynamite Results at Teradyne (TER, INTC, TXN)

Author: Mark Holder
Disclaimer: Mark Holder owns TER in his Covestor Opportunistic Arbitrage Model.

July 29, 2010: Teradyne (TER) reported results that were explosive after market hours on July 28, 2010. Earnings of $.69 beat analyst estimates by $.22 or over 40% for the 2nd straight quarter. Revenue was up an amazing 38% sequentially. For 3Q2010 they forecast earnings of over $.80 easily beating estimates of only $.46 (Business Wire). TER continues to benefit from a fast expanding market in wireless (read smartphones) and smart power management.

So what did the stock do? It went up. The gain for the day ended up $.86 or a little over 8% (Google Finance). Not bad, but when you consider the guidance nearly doubled the estimate from back in April but the stock is still down nearly 20% from the April 26, 2010 highs of $13.10, it just doesn’t add up. And this is even after the large cap semi stocks like Intel (INTC) (Morningstar ) and Texas Instruments (TXN) (http://www.morningstar.com/earnings/15888313-texas-instruments-inc-txn-q2-2010.aspx ) had blow out numbers.

In all fairness, the market should be concerned about cycle peaks and cyclical volumes in the semiconducter sector. Orders were down slightly, but from a bristling pace in 1Q2010. Too many people seem concerned about a slowdown in demand for a peak to have been reached.

Financials
2010 estimates now range around $2.3 leaving the stock at 4.8x eps. With over $2 in net cash, TER has an Enterprise Value of just $9 or a meager sub 4x eps (SEC). Would it be crazy for the valuation to triple to 12?

Summary
For now, 2010 appears to be the opposite of 2000. In 2000 a company with this much growth would trade at 40 or 50x earnings. Now we’re lucky to see 4 or 5x.