Sep 4 2000 7:00AM ET More on Bargain Bin...
Pick of the Week: Varian Semi
By Frances Hong
Technology Reporter
WHO: Byron Walker, UBS Warburg semiconductor-equipment analyst
STOCK PICK: Varian Semiconductor Equipment Associates Inc. {VSEA}
CURRENT PRICE: $57.50
12-MONTH PRICE TARGET: $85
VALUE-ADDED BENEFITS: Varian Semiconductor Equipment Associates is the world’s top maker of ion-implantation systems, and it stands to capture increased sales as the industry transitions to 300mm production.
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Got a few extra chips to place some bets on? Consider the chip-making equipment sector, which, though volatile, is still riding a wave that is expected to last at least through 2001.
In fact, Walker favors chip capital-equipment maker Varian Semiconductor Equipment, which specializes in chip-processing equipment, particularly ion-implantation systems.
The company's systems help chip makers deliver smaller, faster and more feature-packed chips.
At their current price, Walker says the company's shares represent an exceptionally strong value at about 17 times expected calendar-year 2000 and about 14 times calendar-year 2001 earnings.
Walker rates the stock "strong buy" with a 12-month price target of 85. Other industry analysts seem to agree, as Lehman Brothers recently upped its rating to "buy" from "neutral," noting that industry forecasts for ion-implant growth are much too conservative.
Analyst Opinions:
Varian
Strong Buy 5
Buy 4
Hold 1
Sell 0
Strong Sell 0
Source: Zacks Investment Research Inc.
With industry-leading customers, such as International Business Machines Corp. {IBM} Micron Technology Inc. {MU}, the company’s growth should be sustainable for the near future. Walker estimates the firm’s earnings per share for the fiscal year ending Sept. 30 and fiscal 2001 to be $2.40 and $3.92, respectively. Revenue for the same period is estimated to be $679 million and $930 million, respectively.
"These are inherently cyclical and volatile stocks," the analyst says. "We had a speculative surge in the beginning of the year, but they are returning to more value-oriented pricing." In fact, Walker says the upcycle can continue into 2002, though at slower rates than the exceptional levels seen during the past 18 months.
Varian Semiconductor Equipment Two-Year Stock-Performance Chart
What will help drive the company's growth?
High demand for wireless and communication devices, such as cell phones, PCs and personal digital assistants. "We’re looking for a strong fourth-quarter semiconductor device build cycle to contribute to [Varian Semiconductor Equipment's] top-line growth," Walker says.
Handheld Market Is Getting Crowded
One of the firm’s competitive advantages is its offering of a single platform
ion-implant solution across all currents and energies, which reduces the cost of fab ownership.
As the industry transitions to 300mm wafers from 200mm wafers, which allow the creation of about 2.5 times more chips on a wafer, Varian expects to reap the benefits. It is the market share leader in 300mm-capable ion-implant tools, with more than 50 percent of pilot-line orders, Walker says.
Chip-Equipment Stocks to Watch
"The firm will continue to grow its ion-implant market share and expand gross margins," the analyst adds. |
