Banc of America downgraded Varian Semiconductor (VSEA ) to sell from neutral.
Analyst Mark FitzGerald says the stock is well ahead of his $29 target. He thinks Varian's earnings per share power is quite different from the Street's estimate, and suggests significant downside risk to the stock. He also thinks the stock is a small-cap cult favorite because of strength in its earnings power in the last cycle.
But the company's business has changed, FitzGerald says. In order to sustain growth, Varian is moving into a new market, the high-current implant market. Here, Varian faces two established competitors, Applied Materials and Axcelis Technologies, which will be a tough battle. FitzGerald thinks profitability will suffer, and earnings per share will fall short of the prior peak. He has a $29 target and a p-e of 25, which is based on a $1.10 2004 earnings per share estimate.