Teradyne stock slips as JP Morgan downgrades, citing 'overestimated' rebound
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Teradyne (NASDAQ:TER) shares slipped more than 3% in premarket trading on Monday as investment firm J.P. Morgan downgraded the semiconductor equipment company, citing the potential for an "overestimated" rebound.
Analyst Samik Chatterjee lowered his rating on Teradyne (TER) shares to underweight from neutral and reduced his per-share price target to $81 from $90, noting that he does not share the expectations of a second-half rebound in revenue and earnings, due in part to weakness from Apple (NASDAQ:AAPL).
"For the second half of 2023, in which consensus expects a 28% [half-over-half] increase in revenue, we see downside driven by lackluster demand from Apple, and for 2024 where consensus expects 25% revenue growth, we see several areas of weak [wafer fab equipment] spend and limited 3nm led demand impacting rebound expectations," Chatterjee wrote in an investor note.
Chatterjee also noted that Teradyne (TER) shares are trading at 20 times fiscal 2024 estimates, about in line with the historical multiple of 21 times, suggesting there is little room for upside from current levels, especially with worries about wafer fab equipment spending and technology transitions.
As it pertains to Apple (AAPL), Chatterjee said the tech giant's demand for 3 nanometer test equipment has "underwhelmed till date," meaning that any revenue ramp is likely to come later than expected for Teradyne. He added that Apple's (AAPL) strategy of using only the latest processors in its iPhone Pro models, while having the lower-end models use lower chips has allowed the company to manage its supply chain, while also using less testing equipment.
"We now expect Apple revenues to track to the low-end of the $300-$500 mn guide, which in combination with a weaker volume backdrop for semiconductors leads us to forecast a 20% [half-over-half] increase, well below consensus expectations," Chatterjee explained.
The analyst added that the weakness in consumer spending could wind up being an issue for the smartphone and internet-of-things markets, as well as certain parts of the semiconductor industry, such as memory, storage and system-on-a-chip, further dampening any revenue rebound for Teradyne (TER).
Earlier this month, Goldman Sachs picked Teradyne (TER) as a stock that could work in either of its recession scenarios.
Analysts are largely bullish on Teradyne (TER). It has a BUY rating from Seeking Alpha authors, while Wall Street analysts rate it a BUY. Conversely, Seeking Alpha's quant system, which consistently beats the market, rates TER a HOLD.