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Verigy Takes Off

Shares jump more than 25% after its earnings and outlook.
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shares shot up more than 26% Wednesday on strong earnings and an analyst upgrade.

The Singapore-based company, which makes semiconductor test systems, announced after the bell Tuesday that it made $35 million, or 58 cents a share, stripping out an unfavorable change in the German statutory tax rate and other one-time items, in the fiscal fourth quarter.

A year earlier, adjusted earnings came to 52 cents a share. Analysts were looking for EPS of just 50 cents this year, according to Thomson Financial.

The company also projected first-quarter revenue of $195 million to $205 million, which would sit atop the high end of Wall Street's consensus. GAAP earnings should range between 49 cents and 54 cents a share, including stock-option expenses. Analysts, who usually exclude items from their estimates, are looking for 38 cents a share.

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Stifel Nicolaus analyst Patrick Ho upped the stock to buy from hold on the heels of all this, commenting in a telephone interview that he thinks Verigy will "absolutely" outperform its rivals, regardless of any upswings or downturns in the semiconductor market.

Ho added that, while the company isn't immune to a contraction, he believes "they'll weather it a lot better than their peers."

He pointed to the company's practice of using a third-party manufacturer to make its test systems, in particular, since this helps steel it against volatility by substantially cutting down on fixed costs.

Ho trimmed the company's fiscal 2008 profit expectation by a dime to $2.07, but called the adjustment a "tweak" that merely brings the number down to more "manageable levels," given current industry uncertainty. He had assumed, prior to the robust earnings and outlook, that the figure would have to be lowered by "a lot more."

Together with earnings, Verigy announced last night that it had approved up to $150 million for repurchasing up to 10% of its stock, meaning around 6 million shares.

If approved by shareholders at the company's April annual meeting, this will be its first share-buyback program since its June 2006 initial public offering. Ho called this a "great" and even "necessary" move, given the company's large cash surplus.

Shares were recently up $5.56 to $26.61.