ML:TER val approaches bottom of cycle,expect it to appreciate by 84%
Excerpts from ML 10/5/00
Investment Highlights:
• The September Quarter reporting period for Semiconductor Capital
Equipment should see predominantly in-line to slightly stronger than forecast
revenues and EPS. There are some capacity constraints preventing further
revenue driven EPS upside from some companies. Orders on average should
grow about 6-7% Q/Q while revenues grow about 10% Q/Q.
• Common themes to watch for on conference calls 1) a noticeable
acceleration in 300mm forecasts, 2) a noticeable increase in customers
moving to copper, 3) DRAM related capital spending is forecast to begin to
grow around year end 2000, and 4) a lack of change in outlook – capital
spending plans of major semiconductor companies remain intact.
• Reducing price targets to reflect valuation realities – maintain ratings and
estimates. Concerns on demand for PCs, cell phones, and other technology
end products combined with broader macro-economic concerns will temper
the valuations of semiconductor equipment stocks even as the fundamentals
for capital spending continue to look strong. Thus, we estimate that our
previous price targets of 20-25x 2001 on average are generally too
aggressive in the new, end market-demand concerned technology
investment mind set. As a result we have adjusted our price targets to 18x
on 2000 on average, a level in line with the absolute valuation of the group
in the last half of the 1993-1995 cycle. This provides an average of 75%
appreciation potential for the stocks in our coverage.
• We expect that once the inventory sell off from PC and wireless related
devices is complete, a more accurate end market growth picture will be
attained that will be the impetus for a recovery in Semiconductor
equipment stocks. Given the fact that many smaller to mid –cap stocks have
reached valuations approaching bottom of the cycle levels, we would expect
the group to outperform on positive semiconductor end-market news in the
fourth quarter.
Rating Stock Price-10/3 Price/2Ksale Price-To_book CY01E-PE
Target-CY01-PE New-Price-Target Target-Apprc.
2-1 AMAT $51.63 4.1 7.3 13.9 21 $76 * 47%
2-1 KLAC $37.69 3.8 4.3 16.4 22 $50* 33%
2-1 LRCX $22.06 2.0 5.1 9.4 16 $38* 72%
1-1 NVLS $41.88 4.2 3.8 14.4 21 $62 48%
1-1 TER $32.56 1.9 4.0 8.1 15 $60 84% |
