Teradyne

(TER) - Get Report

, 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.

The analyst also pointed out that the stock is currently trading at 1.5 times EBITDA/sales, which has usually been a trough valuation over the past decade.

In the meantime, Teradyne has a solid balance sheet that can withstand any short-term downturn in its core business. At the end of the third quarter, the company had $748 million ($4 a share) of cash and investments on the balance sheet and no debt.

Teradyne said in its earnings release that it completed its existing $400 million stock-buyback program, repurchasing some 27.9 million shares over the past year. Still, with that much cash just sitting on the balance sheet, I would not be surprised to see management announce a new buyback program at the stock's depressed levels some time in 2008.

Given the full picture, I do believe that Teradyne is attractive to purchase at current levels. The stock is already trading at a historically low valuation, and based on its peers' expected spending budgets, the company should see its orders begin to pick up in the first half of 2008.

Backed by a pristine balance sheet and the potential for more share-repurchase support, Teradyne can trade back up toward the midteens over the coming quarters.

David Peltier is a research associate at TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Peltier appreciates your feedback;

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