Piper Jaffray Reiterates Neutral Rating on Veeco Instruments (VECO)

Piper Jaffray is out with a research report this morning, where it reiterates its Neutral rating on Veeco Instruments Inc. VECO; it has a $44.00 price target on the stock. The PJ analysts said, “Veeco reported revenues and EPS of $253M and $1.01, above our estimate of $234M and $0.83, and consensus estimates of $232M and $0.83. Bookings came in at $357M (+30% q/q), above our estimate of $289M (+8% q/q) driven by strong LED & Solar bookings at $260M (+23% q/q) and Data Storage bookings at $50M (+89% q/q). Gross margins increased 200bps to 45% given Veeco successfully ramped capacity to ship 81 units, which was ahead of its goal to ship 75 units in 2Q10. Book to bill remained above parity at 1.37.” They added, “Veeco management conducted its own bottoms up analysis of Chinese government subsidies to the LED industry and found 7 cities with subsidies, 5 of which are in Guangdong and Jiangsu provinces, which our checks suggest have allocated $663M to subsidize LED manufacturing into 2011. We estimate Veeco received orders for 116 tools in 2Q10 from 17 customers, 7 of which were Chinese. If we assume each Chinese customer placed orders for 10 tools on average, then China would account for 60% of Veeco's 2Q10 orders. Furthermore, assuming Veeco had 50% share in China, would imply total China based orders of 140 tools, and $206M (or 31% using our higher estimate of $663M) in subsidies used up just in 2Q10.” They also said, “We maintain a Neutral rating and $44 price target which is based on applying a 11x PE multiple to our CY11 EPS estimate of $4.00.”