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On Monday, Morgan Stanley (NYSE:MS) analysts downgraded Teradyne stock from Equalweight to Underweight, maintaining their price target at $117. According to InvestingPro data, Teradyne currently trades at $138.40 with a P/E ratio of 42.09x, suggesting rich valuation levels. The stock appears overvalued based on InvestingPro's proprietary Fair Value model.
The downgrade follows a detailed analysis of the semiconductor test market, where Teradyne has seen its market share decline in the face of competition from Advantest, particularly in areas such as GPU and HBM. Teradyne's key segments, smartphone and NAND, have not experienced significant growth since their peak in 2020-2021, which has contributed to the loss of market position.
The analysts noted that moderate recoveries in smartphone and NAND sectors are unlikely to significantly alter the market share dynamics within the test industry. Despite market challenges, InvestingPro data shows Teradyne maintains strong fundamentals with a gross profit margin of 57.89% and a healthy current ratio of 3.09x. InvestingPro subscribers can access 13 additional key insights about Teradyne's financial position.
The composition of the test market has shifted, with High-Performance Computing (HPC) and DRAM emerging as the primary applications. Despite intriguing growth prospects in ASIC and Apple (NASDAQ:AAPL) testing, these sectors are not expected to substantially impact Teradyne's market standing in a duopoly that encompasses the entire semiconductor industry.
Morgan Stanley's projections indicate that the ASIC Test Total (EPA:TTEF) Addressable Market (TAM) will increase from $219 million in 2024 to between $414 million and $484 million in 2026/2027. However, this growth is deemed insufficient to materially affect either Teradyne or the overall market. Similarly, while Apple's test revenue is expected to double year-over-year in 2025, it is not forecasted to return to the high levels seen in 2020-2021.
The revised price target of $117 implies a 15% downside and is based on applying a 23x multiple to the firm's Fiscal Year 2026 earnings per share estimate of $5.07. This figure is significantly below the consensus estimate of $6.13 and company expectations ranging from $5.50 to $7.50.
The 23x multiple also represents a 20% premium to Teradyne's front-end peers, down from its 40% historical average, reflecting the company's diminishing market share. Morgan Stanley anticipates that Teradyne will likely lower their Fiscal Year 2025-26 targets at their Q4 earnings report, acknowledging weaker than anticipated performance in 2024 and more conservative growth expectations.
With earnings due in just 2 days and analyst targets ranging from $117 to $180, investors seeking deeper insights can access Teradyne's comprehensive Pro Research Report, available exclusively on InvestingPro, which includes detailed valuation analysis and growth prospects.
In other recent news, Teradyne Inc (NASDAQ:TER). has experienced significant developments. The company reported third-quarter results surpassing its sales guidance with revenues of $737 million and non-GAAP earnings per share at $0.90. Northland Securities and JPMorgan both upgraded Teradyne's stock outlook, citing the company's advantageous position in the semiconductor industry and confidence in its growth potential. However, Craig-Hallum reduced its price target for Teradyne due to mixed performance across its business segments, while Evercore ISI lowered its price target but maintained an Outperform rating.
Ford (NYSE:F) Tamer, a member of Teradyne's Board of Directors, announced his decision to not stand for re-election at the upcoming annual shareholders meeting in 2025 due to his recent appointment as CEO of Lattice (OTC:LTTC) Semiconductor Corporation. Teradyne's revenue growth is anticipated to accelerate, with revenues predicted to reach approximately $4.4 billion in 2026. The demand for Teradyne's testers is expected to increase into 2025 and 2026, coinciding with the semiconductor industry's gradual adoption of more advanced and costly 2nm node technology.
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