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Silicon Valley Group (SVGI) 25 5/8 unch: This may be one of those days where it is better to be smaller rather than bigger; where it is better to be a non-tech stock rather than a tech stock. The reason being is that Microsoft's earnings report and cautious outlook has pulled down the tech sector and the broader market, particularly its big-cap brethren in the tech sector. Silicon Valley Group, however, is holding its own. The fact that this chip equipment maker is a small-cap company may be a contributing factor to its relative strength, but its outperformance today is most likely tied to the fact that it has garnered some bullish support from Lehman Bros. which upgraded SVGI to OUTPERFORM from NEUTRAL; increased its price target to $35 from $33; and argued consensus EPS estimates for 2001 are too low (First Call is $1.40, Lehman is $1.70) given the strong order trends in all of SVGI?s businesses. This bullish backing follows on the heels of Silicon Valley Group's fiscal second quarter earnings report that was released last Thursday. It should be noted, too, that Bear Stearns upgraded SVGI from NEUTRAL to ATTRACTIVE the day of the report, yet that announcement was muted in a thinly-traded session that saw most buyers favoring non-technology issues. Upon further reflection, and in the wake of the Microsoft breakdown, it appears investors are no longer turning a deaf ear to the support provided by the aforementioned brokerages. Frankly, we believe that is a prudent move considering the strong fundamentals in the semiconductor industry that have benefitted the chip equipment makers. In addition, Silicon Valley Group has shown improved earnings momentum, having surpassed analyst estimates in its past four quarters amid strong sales. In its fiscal second quarter, SVGI reported net income of $0.32 per diluted share compared to a net loss of $0.55 per diluted share last year. That was 12 cents ahead of consensus estimates and well above its profit of $0.18 per diluted share reported in the prior quarter. Sales of $204,596,000 marked a 233% increase over the year-ago period and an increase of 14% on a sequential basis; orders of $305.69 mln represented a book-to-bill ratio of 1.5-to-1. Earlier this morning, it was reported the March semi book-to-bill ratio was 1.45, up from 1.44 in February. The strong results for the second quarter were attributed to improved profitability on increased sales-- a point reflected in the fact that its gross profit margin on a year-over-year basis jumped to 43.5% from 23.0%. These positive trends notwithstanding, Silicon Valley Group doesn't sport exorbitant valuations, trading at 30.1x and 18.3 x est. FY00 and FY01 earnings respectively. Moreover, its valuation looks even more attractive when taking into account the company ended its last quarter with nearly $5 in cash and temporary investments. Hence, we expect its earnings momentum, solid growth prospects, and attractive valuations should provide healthy support for the stock going forward as that combination is an attractive one for growth and value investors alike.-- |
