Teradyne, Inc. (TER) - Bear of the Day

Teradyne, Inc. (TER) is a leading provider of automated test equipment. The company's third quarter results were dismal, missing the Zacks Consensus on both the top and bottom lines. Forward guidance was also disappointing, as demand for back-end testing equipment has plummeted.

Peaking of the semiconductor equipment cycle, relatively lower exposure to the memory segment and a negative mix of business will impact results in the next few quarters. As a result, we think that investors are likely to discount the product lineup, leaner cost structure and strong balance sheet.

We are therefore initiating coverage of TER shares with an Underperform rating. The forward P/E based on 2011 earnings is at a 35% discount to the peer group, much lower than the historical range of a 41% to 50% discount. We therefore believe there is significant downside potential.
 
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