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Technology Stocks : Teradyne -- Ignore unavailable to you. Want to Upgrade?

To: Jeffrey D who wrote (1034)	7/19/2000 4:22:11 PM
From: Maverick	Respond to of 1184

Weisel upgrades to ST BUY,tgt $135 Teradyne (TER) 67 7/8 -1/8: -- Update -- Thomas Weisel upgrades to STRONG BUY from BUY; firm maintains 2000 EPS estimate of $3.05, 2001 EPS estimate of $3.90 and 12-month price target of $135. States business fundamentals appear solid and firm believes strength will continue through 2H00 and into 2001.

To: Jeffrey D who wrote (1034)	7/24/2000 5:22:09 PM
From: Maverick	Read Replies (1) \| Respond to of 1184

ML:SCE Analysis.Order increase 17% Q-Q Investment Highlights: • The semiconductor capital equipment book-to-bill for the US preliminary results came out at 1.26 down slightly from 1.28 in May. The ratio declined more from an acceleration in shipments than from slowing orders. • Overall orders grew 1% month to month and 17% quarter to quarter. Shipments slowed to 3% growth month to month but grew 28% quarter to quarter versus 9% growth in the first quarter. • Front-end (AMAT, KLAC, LRCX, NVLS …) orders were strongest up 5% month to month for an increase in book-to-bill from 1.28 to 1.32. Front end orders actually accelerated from 2% growth in May. Front-end orders growth rate also increased year over year from 76% in May to 83% in June. • Back-end (TER, KLIC, CMOS …) orders were down 10% month to month for a book-to-bill decrease from 1.28 to 1.09. This was in-line with Teradyne’s recent results of a book-to-bill of 1.09. • The slowing in overall order rates has been well expected as month to month and quarter to quarter comparison have become much more difficult. Investors should be aware that the absolute trend of orders is a much stronger indicator of stock direction than changes in growth rates. The stocks have taken a significant correction with the average P/E dropping to l8x 2001 from the peak of 30x at the end of the first quarter. We believe this presents a buying opportunity as the outlook is for continued order growth in the second half and beyond. Semiconductor Fluctuations in Order rates are common As Chart 1 shows, the rate of change of orders fluctuates widely on a quarter to quarter basis throughout the cycle. The main determinant is the absolute order change as shown in Chart 2. The back-end does appear to be saturating for the near term. However, we expect that an acceleration in the backend will occur in the third and fourth quarter based on forecasted semiconductor unit growth rate acceleration that will be needed to meet year end electronics demand. Note in Chart 2 how the stocks rise on average throughout the cycle even though order rates in Chart 1 some times are anemic. We believe that the tight capacity and need for advanced technology remain strong drivers for semiconductor capital equipment demand. The strong seasonal demand period of the fourth quarter is likely to further exacerbate the supply tightness and provide upward pressure on semiconductor pricing. Equipment demand is likely to accelerate from the already record bookings levels in this scenario. Given that the stocks have sold off to an 18x P/E on 2001 on average – the same absolute level as in the second half of the last cycle (1993-1995) while the market is at much loftier valuation levels than the previous cycle, we believe that as supply tightens, multiples will expand back in to the mid-20 P/E range for the leading companies. Along with continued estimate increases, our Buy-rated stocks should exceed 40% appreciation on average in the next 12 months.