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Technology Stocks : Cohu, Inc. (COHU)
COHU 14.77+2.5%Oct 15 3:58 PM EDT

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To: EACarl who wrote (6658)3/20/2019 11:30:12 AM
From: robert b furman   of 6733
 
Hi Eric,

I also remember you laughing at my 400 million in revenue.

Their 2018 revenue was 451.8 million.

These guys have now rolled up the entire test handling manufacturing globally!

It has been a long road of making the superior product, which has resulted in relentless long term market share gains.

Xcerra was the company that bought Microtest from Dover. At the time Microtest was the largest gravity test handler in the world.

Cohu had previously bought Rasco, also from Dover (then the number two market share gravity test handler).

Cohu grew Rasco into being the now number 1 gravity testhandler it took 5 years.

When cifius did not allow the declining Xcerra to be sold to a Chinese hedge fund for competitive reasons ( the white paper written describing why it should not occur was written by Cohu).

Cohu stepped up and bought a bigger company than they were , with more cash than they had and higher margins. Xcerra was an outsource assembler through electronic subcontractors and made simpler, but slower test handlers, that ended up being slower than Cohu's superior flow rates -thus more complex but better test handlers.

What Xcerra did have was a huge installed owner base of gravity test handlers. With every test handler Xcerra sold, Xcerra had 100 percent penetration of their contactors (consumable sales).

Cohu will orphan the consumable sales from their huge installed owner base and attempt to gain in the 100% installation of their contactors on the superior test handlers Cohu produces.

This last quarter Mueller guided 300 million in consumables in the next 5 years!

That's huge and would be 180 - 195 million plus in gross, if achieved (60 to 65 percent margins on consumables i.e. formfactor's purchase of Cascade Microtech).

Cohu's updated Opex is 140-145 million.

If achieved Cohu, will become a money making entity without the sale of a new system.

With the sale of new systems Cohu's future pro forma is estimated to be 940 million in 3-5 years. Someday Cohu will top 1 billion on a future cycle peak.

You've had Cohu long enough to see that when they have a merger, they have severance and plant consolidation expenses for the next 12 months. Additionally they have experts estimate the impaired intangibles, which creates a cash free write off much like depreciation.

All of that .reduces taxation and maximizes free cash flow - which will go towards debt reduction. They have a 350 million in debt over a 5-7 year payoff period.

Those who manipulate Cohu's stock price follow a very familiar pattern. Sell the after hours of a poor guidance quarter and beat the price down till no one sells anymore. Scoop up the cheap shares and be patient.

I'm way OK with that.

This sets me up for my favorite trade on Cohu. Selling $10.00 puts on Cohu as far out in time as I can.

A $1.00 premium on a 10.00 put gives me a yield of 2.67 per cent Plus 4 years worth of didvidends premium relative to the premium. $1.24in dividend and put premium / net purchase price of $9.00 = 13.78 percent per year. I'll take that for 2-3 years!
I'm hoping this stock gets pushed down to at least the gap up back at 13.51.

So the $12.50 put will be my next "add to" ($10.00 net purchase price target).

Then I hope to be able to sell the 10.00's.

Back in early 2018 I sold some Cohu at $23.00 - I sold some far out $15.00 puts for .51 cents to 1.55. If assigned it will be a half off sale.

Let's hope this recovery takes over a year or so and allows us to get some of those quadruple the dividend put premiums again.

You know the game eric - play it and invest in a great growth company.

The global roll up is now achieved.

Not to mention the "Go Direct Plan" in Taiwan and China. I suspect this will be a requirement of all Chinese made chips,to be tested by Cohu's test subcontract house. Cohu's machine vision and turret handlers would have caught the "Extra chip ST installed on the server chips that went to AMZN and MSFT server cloud farms.

This small company has played the long and conservative growth story in a very cyclical business. They didn't do it with big debt, just very solid long term performance.

What's not to like? Enjoy the discount and high put premiums!

Although it is their biggest merger by far, and I suspect it will take well over a year to consolidate into a test handler behemoth. It will be their last hurrah.

The next step will be AMAT of TER buying them up.

If you go back into the history of all semi equipment companies, those who embraced debt and consolidated their market with "SCALE", have all outperformed and embraced higher dividend payouts and a 4-5 multiple in their stock price!

KLA bot Tencor
LRCX bot NVLS
AMAT bot VSEA

Rather than fight over market share and reduce margins, the consolidation to preserve margins always is more profitable.

So it was and so it shall be.

Remember where you heard it first buddy - I'm sure you will! <smile>

P.S. I've been waiting for your negative posts - its a great timing sign.

IF YOU ARE SHORT GET LONG

IF YOU ARE LONG GET MORE

Just think what a ride the new Cohu stockholders who traded their XCRA stock for Cohu are experiencing!

Should shake out a lot of low hanging fruit eh?

BUY THE DIP!!

Bob
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