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To: mopgcw who wrote (887)	11/14/2006 7:16:27 AM
From: mopgcw	Read Replies (1) \| Respond to of 1138

gs: Brooks Automation, Inc. (BRKS): Solid CY3Q06 but valuation and cyclical risks drive our Sell rating 52-Week Range US$18-11 YTD Price Change 13.09% Market Cap US$1.1bn Current Yield — Long Term Growth Rate EPS Growth Estimate NA Fiscal Year (ending in Sep) 2006 2007E 2008E US$0.77 US$0.72 US$0.70 — 19.7X 20.2X — NA NA Quarterly Earnings Per Share (US$) 0.00 0.20 0.29 0.28 0.28E 0.16E 0.14E 0.14E Dec Mar Jun Sep Dec Mar Jun Sep 2006 Fiscal Year 2007 Fiscal Year What"s changed Brooks reported solid CY3Q06 results with sales of $210mn (+13% qoq), above our $200mn/Street?s $206mn estimate, driven by robust vacuum systems sales. Pro-forma EPS of $0.28 was in-line with the Street and $0.02 above our estimate due to higher sales and other income. CY3Q06 orders were $207mn (+7 qoq) versus our $184mn estimate. CY3Q2006 results included the Synetics acquisition, which drove most of the sales and order upside. Excluding the acquisition, CY3Q06 sales would have been flat qoq and orders down 8% qoq. CY4Q06 guidance of $188mn/$0.28 (ex. discontinued operations) excludes Brooks" software business that is being sold to Applied Materials. We estimate that guidance is above the Street?s $196nm (~$176 excluding software)/$0.29 estimate. We are raising our estimates as lower gross margins (driven by the divestiture of the 70% GM software business) are being offset by higher sales and other income, and lower taxes: CY07 goes to $0.60 from $0.50; CY08 to $0.75 from $0.60. Implications While CY3Q2006 results and CY4Q2006 guidance were solid, there is no change to our Sell rating on the stock given that: (1) we believe that subcomponent companies like Brooks are likely to be impacted the most during an inventory driven downturn that we expect in the coming quarters, as Brooks operates at the bottom of the tech supply chain and thus has very low visibility and ability to plan ahead, and (2) valuation remains rich at 35X our estimate of normalized EPS for Brooks of $0.40 versus the SPE median multiple of 22X and the S&P 500 multiple of 17X. Valuation We continue to expect meaningful downside in the stock to our 12-month price target of $7, which is based on an 18X multiple applied to estimated normalized EPS of $0.40 (up from $0.35 post the software divestiture). Key risks The key upside risk is a faster than expected semi inventory correction.