Varian Semiconductor Posts Another Blockbuster Quarter

Varian Semiconductor Equipment Associates, Inc. (VSEA) has exceeded analysts’ earnings estimates in each of the past eight quarters. VSEA recently announced solid first-quarter fiscal 2007 results.

Over the past month, this year's estimates have increased 12.6%, representing upward revisions by nine analysts. The stock is cheap given the company's growth prospects. VSEA is trading at 18.6x this year's estimates, below the projected long-term growth rate of 23.3%, giving the stock a PEG ratio of 0.80.

Varian Semiconductor Equipment Associates, Inc. engages in the design, manufacture, marketing and servicing of semiconductor processing equipment used in the fabrication of integrated circuits.

On Jan 25, VSEA reported first-quarter fiscal 2007 profits 66 cents per share, compared to profits of 22 cents per share for the prior-year period. The result amounted to a whopping 200% year-over-year improvement and an 11.9% positive earnings surprise. VSEA has now exceeded analysts’ earnings expectations for eight consecutive quarters by an average margin of 7.0%. Revenues soared 40.2% to $225.6 million from $160.9 million in the first quarter of fiscal 2006.

CEO Gary Dickerson stated:

“The first quarter of fiscal 2007 exceeded our financial guidance. The first quarter of fiscal 2007 was even more compelling from a competitive perspective. Given our strength in the foundry, logic and memory segments, we expect to continue to gain more market share in 2007.”

The consensus estimate for this quarter currently sits at 66 cents. This represents an 11.9% jump over the past month. Upward revisions were submitted by 10 of the 12 covering analysts. Profit forecasts for the full year have risen 12.6% to $2.60 over the same period of time. Nine of the 12 covering analysts upped their estimates.

On Dec 8, the Board of Directors announced that it has amended the company’s existing stock repurchase program by increasing the amount of funds that may be expended in repurchasing VSEA's common stock from $200 million to $300 million.

The stock is cheap given the company's growth prospects. VSEA is trading at 18.6x this year's estimates, below the projected long-term growth rate of 23.3%, giving the stock a PEG ratio of 0.80. The company’s return on equity tops that of the industry average—15% compared to 10%.

Since we last featured VSEA as an Aggressive Growth stock on Nov 28, the company is up over 22%. Furthermore, the stock is still a Zacks #1 Rank, thanks to continually exceeding analysts’ earnings expectations, coupled with consensus estimates trending higher.

VSEA 1-yr chart: