Teradyne To Price $400M Senior Notes In Private Offering

Teradyne Inc. (NYSE:TER) recently announced plans to offer $400 million of convertible senior notes in a private placement. The interest rate, the conversion rate and certain other terms of the notes are yet to be determined.

Shares of Teradyne have been underperforming the industry on a year-to-date basis. The stock has returned 15.82% compared with the Zacks Electronic Test Equipment industry’s gain of 17.53%.

Coming back to the news, the notes will be offered to qualified institutional buyers only, and in accordance with Rule 144A under the Securities Act of 1933, as amended. The company will also grant initial purchasers of the notes the option to buy up to an additional $60 million aggregate principal amount of the notes to cover any over-allotment. This option will be exercisable for 30 days.

Interest on the notes will be paid semi-annually on Jun 15 and Dec 15 of every year and will mature on Dec 15, 2023.

In connection with the pricing of the notes, Teradyne expects to enter into more convertible note hedge transactions with the initial purchasers or their affiliates if required.

Teradyne expects the proceeds from these offerings to be approximately $392.0 million or $450.8 million if the underwriters exercise in full their option to purchase additional notes. A certain portion of this will be used to pay the cost of the convertible note hedge transactions and repurchase up to $80 million of shares. The remaining net proceeds will be used for general corporate purposes.

Teradyne is a leading provider of automated test equipment. The company reported decent third -quarter results, with both the top line and the bottom line outperforming the respective Zacks Consensus Estimate.

Exiting the third quarter, Teradyne had cash and short-term investments of approximately $896.4 million, up from $823.2 million in the prior quarter. Cash flow from operations was roughly $203.8 million compared with $180.7 million in the previous quarter. The company also paid a quarterly dividend worth $12.1 million.

We believe that the company has a strong balance sheet, which will help it to capitalize on investment opportunities and pursue strategic acquisitions, further improving its growth prospects. Moreover, we believe that the senior notes offering will bring down the company’s cost of capital, thus strengthening its balance sheet and supporting growth.

Currently, Teradyne sports a Zacks Rank #1 (Strong Buy). Some other favorably placed stocks in the industry include Cognex Corporation (NASDAQ:CGNX) and Itron, Inc. (NASDAQ:ITRI) , carrying a Zacks Rank #1, and Fortive Corporation (NYSE:FTV) , carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Cognex Corporation delivered a positive earnings surprise of 24.92% in the trailing four quarters.

Itron, Inc. delivered a positive earnings surprise of 30.55%, on average, in the trailing four quarters.

Fortive Corporation delivered a positive earnings surprise of 8.42% in the trailing four quarters.

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