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Technology Stocks : Azenta

AZTA 29.28

-4.2%

11:56 AM EST

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To: mopgcw who wrote (895)	8/12/2007 3:45:44 AM
From: mopgcw	Read Replies (2) of 1138

gs: Brooks Automation, Inc. (BRKS): Maintain Sell rating as cycle risk is too high to justify the valuation 52-Week Range US$20-13 YTD Price Change 9.58% Market Cap US$1.2bn What's changed Brooks reported 2Q07 sales of $190mn (-2% qoq), 2% below our estimate, with EPS of $0.28 (inc. ESOs but ex. one-time items) below the GS $0.30/Street $0.32 estimate. The EPS shortfall (relative to our estimate) was driven primarily by lower sales and gross margins (31.4% vs. our 33.5% estimate), which were partially offset by higher interest income and lower taxes. 2Q07 gross margin weakness was driven by lower than expected unit volumes driving lower overhead absorption, as well as a mix shift toward lower margin CDA business. 2Q07 orders were -20% qoq, driven by weakness in the memory segment. 3Q07 sales/EPS guidance is significantly below the Street at $165mn/$0.11 versus the Street at $188mn/$0.27. We are lowering our estimates on lower sales and margins: CY07E EPS goes to $0.75 from $0.85 and CY08E goes to $0.45 from $0.60. Implications There is no change to our Sell rating on the stock given our view that: (1) subcomponent companies like Brooks are likely to be impacted most during the current downturn, as Brooks operates at the bottom of the supply chain and is therefore unable to adjust its cost structure fast enough to sustain better relative profitability at the trough of the cycle; (2) we believe that the order declines from memory customers highlighted during the 2Q07 SPE earnings calls should result in a significant deterioration in SPE shipments over the next several quarters. Given that Brooks’ business is tied to SPE tool shipments, we would expect this to have a negative impact on company fundamentals in 2H07/1H08; and (3) valuation remains rich at 41X our estimate of normalized EPS of $0.40. Valuation There is no change to our 12-month price target of $7, which is based on an 18X multiple applied to estimated normalized EPS of ~$0.40. Key risks The key upside risk is a less meaningful memory order correction.

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