Verigy Ltd (NASDAQ: VRGY) is a leading manufacturer of advanced test systems for the flash memory, high speed memory and system-on-a-chip segments of the semiconductor industry. Verigy's scalable systems are used by chip makers in the design validation, characterization and high volume testing of their products. An Agilent Technologies (NYSE: A) spin-off in 2006, the firm traces its roots back to Hewlett-Packard (NYSE: HPQ).
The company surprised the Street earlier in the week, when it reported fiscal Q4 EPS of 58 cents and revenues of $209 million. Analysts had been expecting 50 cents and $200 million. Management also guided Q1 EPS to 49-54 cents (38 cent consensus) and Q1 revenues to $195-205 million ($180.27M consensus). Stifel Nicolaus subsequently boosted its recommendation to "buy" and declared a $32 price target.
VRGY shares popped on the news and then moved into the initial stage of a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.
Altogether, brokers now recommend the issue with three "strong buys", five "buys" and one "hold". Analysts see a 20% average annual growth rate, through the next five years. The VRGY P/E ratio (15.82), PEG ratio (0.79), Price to Sales ratio (2.00), Price to Book ratio (3.05), Return on Assets (13.42%), Return on Investment (20.06%) and Return on Equity (21.90%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 75% of the outstanding shares. Over the past 52 weeks the stock has traded between $17.13 and $30.25. A stop-loss of $22.00 looks good here.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
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