Teradyne Hindered By Near-Term Guidance, While The Long-Term Outlook Is Attractive

 

The last year and a half has been a strong one for Teradyne (TER) from an operational standpoint, as strong testing demand at leading-edge nodes has driven a stronger-for-longer cycle that has exceeded even the bullish expectations of a few years ago.

That hasn’t necessarily translated into runaway success for the shares, though, as the 85% or so total return since my last article has underperformed the returns of major semi equipment companies like ASML (ASML), Applied Materials (AMAT), and Lam Research (LRCX), and slightly lagged the SOX itself. Fellow test equipment maker Advantest (OTCPK:ATEYY) has largely kept pace, while probe test card manufacturer FormFactor (FORM) has noticeably lagged, particularly since the spring of this year.

Expectations are hardly low here, and the testing business has shown significant year-to-year cyclicality in the past. I still believe that cyclicality can be a risk to future short-term performance, but I don’t see a compelling reason why test equipment growth can’t continue at a “high mid-single-digit” rate, supplemented with strong growth in the Industrial Automation business as cobots continue to see adoption in multiple end-markets. As that can fuel a high single-digit long-term annualized total return, relatively good by the standards of the semi equipment space (broadly defined), this could still be a name worth considering.

 

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Teradyne Hindered By Near-Term Guidance, While The Long-Term Outlook Is Attractive