Citi Comments On Teradyne Following Share Buyback

Teradyne TER announced after market close its Board authorized the repurchase of up to $200MM in common stock effective immediately. Based on today's closing price of $12.53 and CQ3:10 (Sept) fully diluted share count of ~195MM, this amounts to a buy-back of ~8% of total shares outstanding – a significant number. In the past, mgmt suggested that $400-$500MM is a sufficient cash level for the company to conduct operation and selective M&As. With >$1B cash end-2010, it is taking an active step to increase share holder's value through this buy-back. With the orders set to decline ~60% from 2010 peak and TER can still generate $1.36 EPS in 2011, the worst is clearly behind, in Citi's view. Citi's new normalized analysis suggests a ~$3B normalized semi test market w/~42% share for TER, adding back system test drives ~$1.525B normalized revs and $1.35 EPS. Citi sets its target price at $17 on 10x normalized EPS plus ~$4/shr net cash. While it is not changing its estimates or target, this $200MM buy-back could potentially add another $0.12 shares to TER's normalized EPS. TER is trading higher at $12.62