Chip manufacturer Tower Semiconductor Ltd. (Nasdaq: TSEM; TASE: TSEM) (marketed as Tower-Jazz) is exposed to growing markets, and its revenue is likely to grow by a 9% annual average in 2016-2019, Credit Suisse investment bank economists believe. Credit Suisse today began covering Tower Semiconductor with a "market outperform" recommendation for the share and a $36 target price, 23.9% higher than the current share price.
Under an especially positive scenario, Credit Suisse believes that the Tower Semiconductor share price is likely to reach $44. "Valuation inexpensive," analyst Quang Tung Le writes.
He adds, "TowerJazz is a leading pure-play specialty mixed-signal analog foundry group… with a 30% market share… as of 2016… Driven by its exposure to growth areas in semis such as power, image sensors and RF, we believe TowerJazz's sales will record a 9% CAGR (2016-2019), leading to a ~20% EPS CAGR."
Tung Le believes that Tower Semiconductors' sales will exceed $1.6 billion in 2019, compared with $1.25 billion in 2016, and that its operating profit margins will expand to 23%. The analyst takes note of the new cooperation agreement recently signed in China (for establishing a new fab financed by Tacoma, with no investment from Tower Semiconductor), and says that this provides another potential upside. "…it is difficult to gauge the potential impact of TowerJazz's partnership with Tacoma in China (announced in August 2017) given the fab will likely take around two years to build… However, this gives TowerJazz flexibility on both cost and capex…," Tung Le writes. He estimates that in the long term, the fab in China can add 10% to sales and EBIT. At this stage, he is not including the fab in his model.
Tung Le also mentions Tower Semiconductor's senior executives - CEO Russell Elwanger, president Dr. Itzhak Edrei, CFO Oren Shirazi, and COO Rafi Mor - each of whom has worked at the company for over a decade. On the risk side, the analyst mentions Tower Semiconductor's large exposure to Panasonic (35% of sales), and the shekel appreciation against the dollar.
Tower Semiconductor's share price has surged 93% over the past year, pushing its market cap up to $2.8 billion.
Published by Globes [online], Israel Business News - www.globes-online.com - on September 26, 2017
© Copyright of Globes Publisher Itonut (1983) Ltd. 2017