Teradyne's (TER) shares have already exceeded Goldman Sachs' six-month price target of $16, having recently topped $16.25, the highest since August 2007.
The company is a manufacturer of automated semiconductor test equipment used by chip makers and telecommunications products makers. It is in a highly cyclical and highly competitive industry. On Jan. 26, Teradyne reported fourth-quarter earnings that more than tripled those of the previous year at $60.1 million, or 27 cents per share, from $16.9 million, or 9 cents, a year earlier.
Teradyne's price-to-earnings ratio is 9.2, versus the 21.7 of its industry group, and half that of the S&P 500 average, indicating it still may be very cheap. The company predicts that for the first quarter, it will earn 33 cents to 39 cents per share on revenue in the range of $350 million to $375 million. Analysts' outlook is for first-quarter earnings of 19 cents per share and revenue of $295 million. Goldman's analyst said in a research note that "with orders now 35% below peak and expectations reset, we would add to positions as we continue to expect orders to move higher in 2011."Goldman continued: "Given our expectation of more than $2 per share of free cash flow through 2011, we also expect Teradyne to initiate a (share) buy back." Goldman Sachs expects Teradyne to earn $1.15 per share in 2011. Teradyne shares are up 45% over the past 12 months.
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