Capricious Call: Baird Reverses Teradyne Downgrade After One Day

Teradyne, Inc. TER shares closed down 16.4 percent Wednesday, reacting to a deceleration in semi-test demand suggested by the company's guidance for the second quarter. 

The sell-off led Baird to reverse the rating change it issued Wednesday to become a Teradyne bull once more. 

The Analyst

Analyst Richard Eastman upgraded Teradyne from Neutral to Outperform and raised the price target from $40 to $41. 

The Thesis

Wednesday's sell-off after Teradyne's first-quarter print created a good entry point for a high-quality value idea, Eastman said in a Thursday note.

Although the updated semi-test market needs to prove itself before shares can fully recover, the analyst said he would use the weakness to take advantage of reasonable valuation, intact secular semiconductor trends, the company's proven share gain ability in test, wireless growth prospects and the differentiated growth and expanded significance of the robotics business.

Teradyne's reduced fiscal 2018 system-on-chip, or SOC, market outlook caused Baird to trim its calendar 2018 EPS estimate from $2.15 to $1.95. Baird forecast total revenue this year of $1.99 billion.

Eastman raised the calendar 2019 EPS estimate from $2.50 to $2.62 to reflect expectations for a recovery in the SOC test segment. The analyst projects the re-emergence of alternating years of growth in the SOC market.

Baird expects IA operating expenditure to double in calendar 2019 on the basis of organic investments. Given Teradyne's acquisitions of Mobile Industrial Robots and Energid, Eastman said he expects robotics to be about 30 percent of the company's business by 2021.

The Price Action

Teradyne shares were down 2.16 percent at $33.93 at the time of publication Thursday.

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