Teradyne stock rallies 7% on strong outlook as Wall Street debates Apple's influence

By Wallace Witkowski

Outlook beat a welcome surprise as 'sentiment heading into the print was not positive,' TD Cowen analyst remarks ahead of call with execs

Teradyne Inc. shares rallied in the extended session Wednesday after the electronic testing equipment maker's strong outlook based on auto and industrial demand sailed past Wall Street estimates, and analysts debated how much influence the iPhone maker had on the forecast.

Teradyne (TER) shares rallied as much as 7% after hours, following a 1.1% decline in the regular session to close at $93.33. The company is scheduled to hold a conference call with analysts at 8:30 a.m. Eastern on Thursday.

The company reported first-quarter net income of $83.5 million, or 50 cents a share, compared with $161.9 million, or 92 cents a share, in the year-ago period. Adjusted earnings were 55 cents a share, while analysts surveyed by FactSet had estimated 43 cents a share, compared with 98 cents a share in the year-ago quarter.

Revenue fell to $617.5 million from $755.4 million in the year-ago quarter on semiconductor test sales of $415 million, industrial automation sales of $89 million, systems test sales of $75 million and wireless test sales of $39 million.

Analysts had estimated revenue of $597.5 million, a beat of $20 million, the same amount Teradyne said back in January was what supply constraints had cost the company, and that was included in its March guidance.

Read: KLA stock rises as weak outlook overlooked on forecast of second-half recovery

"A faster recovery from supply-chain constraints in our test businesses and robotics shipments within the range of our expectations contributed to first-quarter financial results that were above the midpoint of guidance," said Greg Smith, Teradyne's chief executive, in a statement.

"Looking ahead, we expect stronger demand in automotive and industrial semiconductor test to help offset ongoing weakness in smartphone-related end markets," Smith said. "In robotics, slowing global industrial growth is contributing to softening near-term demand."

Teradyne expects second-quarter adjusted earnings of 55 cents to 74 cents a share on revenue of $625 million to $685 million, while analysts had forecast earnings of 51 cents a share on revenue of $619.1 million.

Good thing the outlook was above sentiment

"More importantly, Teradyne guided above consensus" for the second quarter on that better-than-expected demand from auto and industrial customers, because "sentiment heading into the print was not positive," wrote TD Cowen analyst Krish Sankar in a note ahead of the call with executives.

Sankar said the outlook implied quarter-over-quarter growth of 6%, or a decline of 22% due to a tough comparison to 2022.

Read: Texas Instruments stock boosted by more end-market visibility as outlook comes in light

"We note that management highlighted back in January that it is being conservative in its automotive and industrial estimates and that it has modeled some decline there given strength in 2022 and [the first quarter of calendar 2023]," Sankar said, who also noted he also heard encouraging commentary from Taiwan Semiconductor Manufacturing Co. (2330.TW) last week

Read: Intel is expected to post its biggest loss on record. Has the chip maker finally hit rock bottom?

"We think a bottom has been put in," Evercore ISI analyst C.J Muse wrote in a note late Wednesday, adding that the stock offers the "most upside" in the semiconductor capital equipment sector.

"We also suspect seasonal strength from Apple Inc. (AAPL) (expected to be 11-13% customer in 2023) is helping in the June [quarter] as well," Muse said. "Recall Teradyne had assumed softening Auto/Industrial, but thus far, this has not occurred." Muse has an outperform rating and a $120 price target on Teradyne.

Not everyone, however, is as optimistic about Apple demand. Last week, Recently, JP Morgan analyst Samik Chatterjee downgraded Teradyne to underweight from neutral and lowered his price target on the stock to $81, citing what he sees as lackluster demand from Apple. JP Morgan started its coverage of Teradyne back in July with a neutral rating and a $120 price target, which was then cut to $85 in October.

Bears are concentrating on "a mediocre Apple ramp in second half and possible weakness in auto/industrial end markets following strong performance," TD Cowen's Sankar wrote, but he believes the Apple weakness is already baked into the stock price, and that auto test markets "may continue to be resilient near-term."

After the bell Wednesday, KLA Corp. (KLAC) shares rose after the chip-making equipment provider pointed to stability in its end markets amid an initially disappointing outlook, following last week's earnings reports from Lam Research Corp. (LRCX) and ASML Holding NV (ASML.AE).

Read:ASML stock struggles as near-term inventory challenges compete with potential 2024 rebound

Additionally, Wolfspeed Inc. (WOLF) shares fell after the silicon-carbide chip maker forecast weak sales for the fiscal fourth quarter and next year.

Meanwhile, Intel Corp. (INTC) is scheduled to report its biggest loss on record, and its first quarterly adjusted loss on record after the bell on Thursday.

At Wednesday's close, Teradyne shares were up 6.9% year to date, compared with the PHLX Semiconductor Index's 15.4% increase, the tech-heavy Nasdaq Composite's 13.3% gain and the S&P 500 index's 5.6% advance.

-Wallace Witkowski

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04-26-23 2237ET

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