Market-Leader Varian a Buy

Varian Semiconductor Equipment Associates, Inc. (VSEA - Analyst Report) engages in the design and manufacture of semiconductor processing equipment used in the fabrication of integrated circuits. September top and bottom-line results were in line with consensus estimates.

VSEA has superior technology and remains several product generations ahead of competitors. As nodes transition to 90 nanometers, VSEA remains the strongest solution for ion implementation. The single-wafer fabricating process is gaining traction, and Varian leads the market in this area. As nodes get smaller and more complex, VSEA’s equipment become more valuable.

Consequently, we reiterate our Buy rating of the shares of VSEA. The company recorded net income of $43.4 million, or $0.55 per diluted share during fourth quarter of fiscal 2007, compared to net income of $23.4 million or $0.29 per diluted share in the last quarter and $32.9 million, or $0.39 per diluted share for the same period a year ago. Management delivered guidance for the first quarter of 2008. VSEA expects revenue to be between $250 and $260 million. Earnings per share are anticipated to range from $0.53 to $0.58 per diluted share.

VSEA presently trades at a multiple of 15.2x our estimate of 2008 earnings (P/E) (pro-forma adjusted for stock option comp). While the concentration to the memory sector bears watching, we feel VSEA will continue to outgrow the broader industry by continuing to take market share. Consequently, we are setting our $45 price target, with a corresponding 17.7x P/E.

Read the full analyst report on VSEA.