IB Net Payout Yields Model

Dynamite Results at Teradyne

Teradyne (TER) reported results last night that were explosive. Earnings of $.69 beat analyst estimates by $.22 or over 40% for the 2nd straight quarter. Revenue was up an amazing 38% sequentially. For Q3 they forecast earnings of over $.80 easily beating estimates of only $.46. TER continues to benefit from a fast expanding market in wireless (read smartphones) and smart power management.

So what did the stock do? What would you expect for guidance that nearly doubled estimates? Well, in this market at least the stock went up. The gain for the day ended up $.86 or a little over 8%. 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 highs above $13 it just doesn't add up. And this is even after the large cap semi stocks like Intel (INTC) and Texas Instruments (TXN) 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 Q1. Considering the economy just left a recession its difficult to see that the sector has already peaked. Too many people seem concerned about a slowdown in demand for a peak to have been reached.

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. Would it be crazy for the valuation to triple to 12?

Summary from Q2 report:
- Q2’10 revenue of $455 million, up 38% from Q1’10 and up 168% from Q2’09

- Q2’10 diluted non-GAAP income of $0.69 per share, up from non-GAAP income of $0.33 per share in Q1’10 and up from a non-GAAP loss of $0.21 per share in Q2’09; Q2’10 diluted GAAP income of $0.55 per share

- Q3’10 guidance: Revenue of $490 million to $520 million: Diluted non-GAAP income of $0.75 to $0.83 per share; Diluted GAAP income of $0.60 to $0.67 per share

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. When would you rather be buying?

Disclosure: Long TER


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