Semiconductor testing equipment maker Teradyne (NASDAQ:) stock has been a benefactor during the pandemic and is set to gain on the global chip shortage spawned by the pandemic. The Company’s chip testing machines enable the manufacturing of these complex components are vital for the operations of automobiles, mobile devices, , smart televisions, video games and consumer electronics. With the wider spread of COVID vaccinations, the re-opening is accelerating rapidly and with it the demand is far outstripping the supply of semiconductors. Estimates for the shortage range from six months up to two years provides the runway for a boost in top and bottom-line growth for Teradyne. The advent of new investments in semiconductor foundries (FABs) by Intel (NASDAQ:) supports the Biden administration’s initiative to galvanize the nation’s infrastructure which also includes semiconductors, rare earth elements and clean energy supply chains. Investors looking to gain exposure in the semiconductor recovery and infrastructure can watch for opportunistic pullback levels.

Q1 Fiscal 2021 Earnings Release

On Apr. 27, 2021, Teradyne reported its Q1 2021 for the quarter ending March 2021. The Company reported earnings-per-share (EPS) of $1.11 versus consensus analyst estimates for $1.06, a $0.06 beat. Revenues grew 11.1% year-over-year (YoY) to $782 million, beating analyst estimates for $760.43 million. The Company ended the quarter with $1.43 billion in cash and marketable securities. The Company expects Industrial Automation (IA) to see more than 30% YoY growth in 2021 on the back of accelerating demand strength. “Testing demand for automotive, industrial, memory, and mobility remain strong and growing.”, according to CEO Mark Jagiela.

Q2 Fiscal 2021 Guidance Raised

The Company boosted guidance for Q2 2021 with EPS coming in between $1.62 to $1.83 versus consensus analyst estimates for $1.34. Revenues are expected between $1.01 billion to $1.09 billion versus consensus estimates for $879.81 million. Test revenues rose 9% YoY while Industrial Automation revenues grew 33% YoY to $80 million. The Company stated, “Both the SOC and Memory test markets will likely exceed the top end of our market forecast resulting in higher sales and profits as reflected by our Q2 guidance. Additionally, increasing forecasts for wafer fabrication equipment investments are a strong indicator for test growth in the years to come.”

Conference Call Takeaways

Teradyne President and CEO, Mark Jagiela, set the tone,

“Rolling it all up, the demand environment in our test businesses has strengthen dramatically since January and the wafer front end equipment forecasts suggest that tester demand over the next few years will continue to grow.”

CFO Sanjay Mehta chimed in:

“The opportunity of automation is growing. Our IA portfolio is solving problems for companies such as improving economics with a typical ROI of approximately one year, addressing labor shortages experienced by manufacturing and warehousing firms and adding supply chain resilience over the long-term.”

He noted that 2020 was a contraction year in IA so the rebound appears dramatic with U.S. and Europe accounting for 70% of IA revenues in Q1 2021. IA revenue growth in China more than doubled growing 50% YoY in Q1 2021.

Multi-Year Runway

The rebound from pandemic recovery combined with advances in semiconductors and the chip shortage comprise strong tailwinds that should provide a multi-year runway for growth. The commitment from Taiwan Semiconductor (NYSE:) to invest over $100 billion in new FABs alone is a massive indicator of the spending expected to fuel growth for semiconductor equipment makers. Teradyne is a clear benefactor from the recovery in the chip sector as it builds out its supply chain infrastructure and output capacity. Prudent investors can monitor for pullback levels to consider taking exposure.

Teradyne Inc Chart

TER Opportunistic Pullback Levels

Using the rifle charts on the weekly and daily time frames provides a near-term view of the playing field for TER shares. The weekly rifle chart was setting up a mini pup breakout until the most recent earnings reaction causing shares to rug pull off the $139.16 Fibonacci (fib) level. Shares collapsed quickly below the 5-period moving average (MA) at $129.59 and 15-period MA at $126.55. The weekly stochastic is still rising but slightly stalled. The daily rifle chart has been in a Bollinger Band (BB) compression that triggered the market structure high (MSH) under $134.53. Keep in mind the market structure low (MSL) buy triggered above $114.81. The daily stochastic was also poised for a mini pup breakout that abruptly failed and crossed back down on the earnings reaction. The 5-period MA is sloping down at $130.56. The semiconductor sell-off is affecting all the equipment makers together. This is setting up opportunistic pullback levels at the $119.39 fib, $114.83 daily MSL trigger, $110.74 fib, $107.53 fib, $101.40 fib, and the $94.54 fib. The upside trajectories range from the $142.34 up towards the $160.42 fib level. Keep an eye on peers KLA-Tencor (NASDAQ:), Applied Materials (NASDAQ:) and Lam Research (NASDAQ:) stocks as they tend to move together.

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