Cantor Fitzgerald analyst C J Muse upgraded Teradyne Inc TER from Neutral to Overweight and a $160 price target.
Muse termed Teradyne one of the sneakier AI plays in semiconductors, adding it to its Top Picks list. He said it has excellent leverage for networking and high-bandwidth memory (HBM) and is growing in traction on the Custom Silicon side of the house.
Teradyne is also well-levered to a broader industry recovery given an outsized share in Auto or Industrial test, strong positioning in the robotics market, and a solid exposure in the mobile market, where underutilized capacity has been reallocated to compute over the past few quarters, resulting in a robust setup for capacity builds once demand inevitably recovers, the analyst added.
Over the past five years, Teradyne has essentially traded in line with the SOX and at a slight premium to the front-end equipment suppliers, rerating to a ~20x multiple on average versus a ~15x multiple on average over the prior five years.
He added that Teradyne has traded more in the 20x-30x range over the past two years, benefiting from multiple expansions across the semiconductor industry.
The analyst writes that 25x is a more than fair multiple today, with upside potential with a greater appreciation of Nvidia Corp’s NVDA AI exposure. Taken together and discounting back, the analyst noted a fair value of $160 today (+22% upside) with a clear path higher after that.
Looking forward, Muse noted a path to $200+ as the discounting mechanism is removed, and the multiple potentially expands as investors seek out AI exposure beyond the core Nvidia, Broadcom Inc AVGO, and Taiwan Semiconductor Manufacturing Co TSM.
Given the profile of the company’s exposure, scarcity value in AI-leverage, and the path for upside to consensus estimates, Muse expects calendar years 2024 and 2025 EPS tracking to $3.10+ and $5.00+ versus consensus $3.03 and $4.69, and earnings power tracking towards the high end of the company’s target model in calendar year 2026.
Price Action: TER stock traded higher by 0.93% at $132.96 at the last check on Friday.
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