On Thursday, JPMorgan shifted its stance on Teradyne (NASDAQ:TER), upgrading the stock from Underweight to Neutral and increasing the price target to $100 from the previous $90. The firm's decision reflects a reassessment of the company's risk profile for 2024, which is seen as more favorable due to the latest corporate guidance provided by Teradyne.
Teradyne's forecast for flat revenues and lower year-over-year earnings, as announced during their fourth-quarter 2023 earnings call, has been a key factor in JPMorgan's rating adjustment. The firm acknowledges that Teradyne faces certain headwinds, particularly in the first half of 2024. These include reduced testing intensity from a major customer, Apple (NASDAQ:AAPL), which is now expected to represent less than 10% of Teradyne's revenue, and the current underutilization of Mobility SOC test equipment due to prolonged weak demand.
Despite these challenges, JPMorgan anticipates a potential rebound in the smartphone market in the second half of 2024. This hopeful outlook is bolstered by an expected increase in complexity with node migrations for significant clients like Qualcomm (NASDAQ:QCOM) and a growing demand for AI smartphones. These factors, combined with strong demand for both HBM and DDR5, could provide Teradyne with opportunities for upside, contrasting with recent concerns over potentially inflated expectations.
Looking further ahead, JPMorgan forecasts a 20% year-over-year growth for Teradyne in 2025 and a 15% growth in 2026. This projection is based on several factors, including increasing complexity in the smartphone market, growth in the memory market, a recovery in the PC market, and potential new customers in the compute segment. However, the firm remains cautious about the company's aggressive growth targets for 2026.
While JPMorgan is not altering its earnings estimates at this time, it anticipates a strong earnings ramp driven by operational expense leverage on back-to-back years of solid revenue growth. This improved earnings potential has led the firm to raise its December 2024 price target for Teradyne, now valuing the company's 2026 earnings forecast at a price-to-earnings ratio of 20 times, consistent with Teradyne's long-term average.
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