Should You Buy It? Check Tarnished Teradyne

Teradyne (TER Quote), the leading maker of semiconductor-testing systems, has lately been testing investors' patience.

Teradyne posted mixed third-quarter results Oct. 17, and cut its forward earnings guidance. The company now expects to earn 4 cents to 10 cents a share on $250 million to $275 million of revenue, compared with previous consensus estimates calling for earnings of 21 cents on $335.8 million of revenue.

As a result, the stock closed Wednesday at $12.34, which is some 34% below its June highs.

Still, Teradyne has received two analyst upgrades since posting the disappointing earnings on optimism that both the company's earnings and share price may be near a bottom.

With that in mind, should you buy shares in Teradyne? Does Teradyne hold value at these levels, or could the stock see the single digits over the coming months?

Teradyne earned 19 cents a share in the third quarter, which was a penny ahead of the consensus analyst estimate. On the other hand, revenue fell 16.6% year over year to $299.5 million and came in 5% below expectations. New-order bookings also fell 11% sequentially from the second quarter, to $273 million during a quarter that's usually seasonally strong for the company.

That said, according to the Oct. 23 Citigroup upgrade, "most test/assembly subcontractors (about 50% of Teradyne's orders) are planning for a 5% to 10% year-over-year increase in capex in 2008." That's shorthand for capital expenditures, or major purchases of fixed assets, to expand the company's manufacturing capacity.