Eagle Test Systems Set to Soar

We reiterate our Buy recommendation on Eagle Test Systems, Inc. (EGLT) that designs, manufactures, sells and services automated test equipment (ATE) for the semiconductor industry. The firm has been expanding its customer base for several years and continues to reduce the percentage of sales from its one customer.

Test is crucial as chips get smaller and faster. EGLT has done an excellent job of diversifying its client base away from one customer. Its cash and marketable securities have grown from $22.7 million in 2005 to $112.5 million in 2007.

EGLT’s products are designed to enable customers to achieve low overall cost-of-test per device. The management believes its test systems deliver increased test throughput for high-volume, price-sensitive semiconductors in the analog, mixed-signal and radio frequency (RF) markets. The goal is to offer test systems that enable customers to achieve a high level of test accuracy and repeatability.

EGLT is trading at 10.0x multiple to our 2009 estimated earnings (P/E). Historically, the semiconductor industry has been highly cyclical with recurring periods of oversupply and under-supply resulting in wide fluctuations in demand for test products. These have resulted in significant variations in revenue, expenses and results of operations, yet the firm has significantly broadened its revenue base to where it is not reliant on one business or client. We set a price target of 12.5x 2009 estimated earnings or $14.00.

Read the full analyst report on EGLT