Tower Semiconductor Ltd.

TSEM Details

Tower Semiconductor Ltd. (NASDAQ: TSEM) is a major analog semiconductor company engaged in the provision of technology and production platforms for Integrated Circuits (ICs) in the consumer, industrial, automotive, mobile, infrastructure, and other allied markets. The company's ICs are used in various applications, including consumer electronics, computers, communications, automotive, industrial, aerospace, and medical device products. As of November 04, 2021, its market capitalization stood at USD 3.68 billion.

Latest News:

• Strategic Partnership: On November 01, 2021, TSEM announced a partnership with Anello Photonics, a Gyroscope developer, to develop a brand-new Silicon Optical Waveguide technology and manufacturing process. The process is adaptable to various sectors, including automotive LiDAR, bio-sensing, quantum computing, artificial intelligence (AI), microwave photonics and optical communications, which conventionally require high-tech integration of optical devices.
• Launching Innovative Technology: On September 13, 2021, the company announced the launch of LiDAR IC technology, a significant development for advanced driver-assistance systems (ADAS) and, eventually, self-driving automobiles. This technology aids in the easy programming of the field of view, resolution, scanning pattern and speed, enhancing the real-world response time of cars outfitted with this system.

Q2FY21 Results:

• Growth in Revenues: The company recorded its highest-ever quarterly revenue in Q2FY21 (ended June 30, 2021), amounting to USD 362.14 million, a 16.78% increase from USD 310.09 million in Q2FY20.
• Improved Net Income: Its Q2FY21 net income was USD 31.32 million vs. USD 21.47 million reported in Q2FY20.
• Strong Balance Sheet: TSEM exited the quarter with a cash balance (including short-term deposits and marketable securities) of USD 728.96 million and total debt of USD 338.56 million.

Key Risks:

• Customer Concentration Risk: TSEM generated ~25% of its revenues from a single customer, Nuvoton Technology Corporation Japan (NTCJ), and an additional 33% from its top 5 clients after NTCJ. Such over-reliance on a few customers for revenue could harm the company's financial health in the long run.
• Supply-Demand Imbalance: TSEM often produces wafers in excess of client orders in anticipation of higher future demand. If it makes more wafers than the customers actually order, it may be left with surplus inventory, which may become outdated and result in a drop in financials and cash flows.

Outlook:

• Revenue Estimates: In its Q2FY21 earnings release, TSEM stated that it anticipates its Q3FY21 revenue to be USD 385 million (+/- 5%), representing a 24% YoY growth.

Valuation Methodology: Price/Earnings Per Share Multiple Based Relative Valuation

(Analysis by Kalkine Group)

* % Premium/(Discount) is based on our assessment of the company's NTM trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.

TSEM Daily Technical Chart (Source: REFINITIV)

Stock Recommendation:

TSEM's share price surged 58.68% in the past twelve months and made a fresh 52-week high today. The stock is currently trading above its 50 and 200 DMA levels, and its RSI Index is at 72.89, representing an overbought zone. We have valued the stock using the Price/Earnings multiple-based relative valuation methodology and arrived at a target price of USD 31.24.

Considering the significant uptick in the stock price, other technical indicators, and the current valuation, we recommend a "Sell" rating on the stock at the closing price of USD 34.99, up 2.64% as of November 04, 2021.

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.