Thursday, January 12, 2017

Teradyne Should Redeploy Capital Toward Growth

Not all semiconductor equipment is the same, and while Teradyne (NYSE:TER) is essentially a co-duopolist with Advantest (NYSE:ATE) in the back-end semiconductor test space (and a pretty well-run company on balance), it's hard for me to see this market offering a lot of attractive long-term growth opportunities. It does tend to support solid margins and cash flows over the full cycle, though, and that gives Teradyne the resources to consider its long-term options.

As is, I think Teradyne is basically fully valued today. The "but" is that the company has a healthy balance sheet and the opportunity to buy its way into new growth markets. The company's early position in collaborative robotics is one such example, and there are a lot of places Teradyne could go in industrial automation from here. By the same token, the company could make complementary acquisitions to augment existing test businesses; these deals wouldn't likely be growth drivers, but could make sense from longer-term synergy and cash-on-cash return perspectives.

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Teradyne Should Redeploy Capital Toward Growth

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