This is a follow on to the last post giving some details on the reason for the "Outperform" ratings.
<<Schwab Soundview Capital Markets(AMAT, CYMI, KLAC, LRCX, NVLS, TER, and TSM) JAGfn.com
14 May 2004, 08:12am ET
TER
TER: Initiate Coverage With An Outperform - In our view Teradyne represents one of the best risk/reward profiles in our coverage universe given the company`s margin leverage potential, semi test strength (Flex, Tiger, Catalyst, IP750 testers driven by product transitions) and attractive valuation at 12.4x our 2005 EPS estimate of $1.70. Furthermore, we believe that our estimates could prove conservative based on further top line and margin expansion.Teradyne orders continue to outperform -- orders could be flat in the June quarter, better than the current expectations, driven by design wins for new Flex, Tiger, Catalyst, and IP750 testers to support product transitions.- We believe Teradyne is gaining share in SOC and mixed signal testing. New Flex tester is gaining traction, could ship 70-plus units in 2Q04, up from 51 units in 1Q and 12--14 in 4Q03. Tiger tester shipments are ramping and is well positioned for further ramp as PCI Express transition accelerates in 2H04.
TSM
TSM: Initiate Coverage With An Outperform - We believe that TSMC is one of the most attractively valued in our coverage universe, currently trading at 13.1x our 2005 EPS estimate. We believe that there is further margin leverage possible, as ASPs could see further improvement driven by improving pricing per individual technology node and a larger leading-edge mix.Our checks suggest wafer starts continue to improve in 2Q, and the capacity TSMC is bringing on in 2004 has been fully booked by customers.- Further margin leverage is likely beyond 2Q, driven by improving pricing per individual technology node and larger leading-edge mix.- The company generates large net free cash flow (we estimate $2.3--$2.4 billion in 2004) despite large capital-expenditure spending, contrary to common view.
KLAC
KLAC: Initiate Coverage With An Outperform - : With an increasing mix of 300mm and leading edge, we believe KLA-Tencor`s orders could outperform in 2H04, as the dollar opportunity per fab is significantly higher at 300mm/leading edge. Furthermore, we believe that the market has for the most part factored in expectations of orders to be down 15%, which positions the company for stronger sequential growth in 2H04.We believe the June order guidance (-15% to +10% quarter over quarter) may be too conservative, orders are likely to be flat to slightly down in our opinion.- Increased mix of 300mm/advanced technology in 2H04 could benefit KLA-Tencor due to the increased use of inspection and metrology at those technology nodes.- KLA continues to be able to hold market share despite new offerings from Applied Materials and Hitachi.- Peak margins in this cycle could exceed 2000 peak margins. We believe that peak gross margins could approach 59%--60% (we are currently modeling 58%) vs. 57% in 2000.- After recent pullback, the stock is trading at attractive valuation, 18.6x C05 EPS of $2.35.
CYMI
CYMI: Initiate Coverage With An Outperform - In our view, the recent pullback in the stock is overdone. Cymer is attractively valued at 14.7x our 2005 EPS estimate of $2.25 and 2.7x its book value of $12.41. We believe that the stock is likely to have positive appreciation as ASPs could see improving trends starting in 3Q04.Initiating coverage of Cymer with an Outperform rating and a $45 price target.- Mask enhancements are extending the life of KrF lithography equipment. Cymer`s ArF laser unit shipments declined to about 23% of mix in 1Q04 from 40% in 4Q03 and are expected to be about 17% in 2Q04; ArF mix is likely to increase starting in 3Q04, increasing the average ASP.
AMAT
AMAT: Initiate Coverage With An Outperform - We believe that Applied Materials` growth could outperform its peers, as the company is benefiting from two capital spending cycles: flat panel displays (FPD) and semiconductor capital equipment. Furthermore, margin leverage could actually be higher as improved pricing is starting to flow through starting with the April quarter.Initiating coverage of Applied Materials with an Outperform rating and a $24 price target.- Although AMAT`s order growth could moderate in the near term, order growth could outperform its peers in 2004 given that the company is benefiting from exposure to both the semi equipment and flat panel cycles.- Further operating margin leverage is likely as improving pricing starts to flow through starting with the April quarter.
NVLS
NVLS: Initiate Coverage With An Outperform - In our view, Novellus could achieve superior order growth as the company is seeing strong traction in PVD and some early success in its emerging business segments. We believe the risk/reward for Novellus stock at the current price remains favorable as the stock is currently trading near historical trough multiples at 2.2x its book value.Initiating coverage of Novellus Systems with an Outperform rating and a $40 price target.- June quarter EPS guidance was too conservative in our opinion. We believe there is a $0.03--$0.05 EPS upside opportunity to the 2Q guidance.- Novellus is seeing strong traction in 300mm copper barrier/seed PVD as improved cost of ownership and technically superior performance provides impetus. We believe that the company had a major win at Intel at 65nm.
LRCX
LRCS: Initiate Coverage With An Outperform - In our view, Lam Research could outperform its peers as the company is seeing new wins in dielectric etch, the fastest growing segment of the etch market. We believe that Lam has the best product lineup and is likely to gain significant market share. We believe the risk/reward for Lam`s stock at the current price is favorable, as the stock is currently trading at 13.1x our C05 EPS estimate and 4.4x book value.nitiating coverage of Lam Research with an Outperform rating and a $35 price target. Stock is trading at an attractive valuation at 13.1x C05 EPS of $1.72. Peak gross margins could surpass last cycle peak margins by 300--500 basis points in our view.>> |
