On Wednesday, TD Cowen adjusted its outlook on shares of GlobalFoundries Inc. (NASDAQ:GFS), lowering the price target from the previous $65.00 to $55.00, yet reiterating a Buy rating on the stock. The semiconductor company, known for its specialized chip manufacturing, has experienced fluctuating demand, which has influenced its stock valuation.
The analyst from TD Cowen noted that GlobalFoundries is seeing signs of improvement in its fundamentals, with a positive seasonal uptick in demand. However, he also pointed out that excess inventory in the industrial and Internet of Things (IoT) sectors is proving to be a challenge for the company's factory utilization rates. Despite these headwinds, the second quarter gross margin (GM) was positively impacted by $66 million in Long-Term Agreement (LTA) adjustments. This resulted in a nearly flat quarter-over-quarter core GM.
Looking ahead, the analyst expects a modest increase in the core GM for the third quarter, projecting an improvement of approximately 70 basis points due to higher unit sales. The free cash flow (FCF) target for the calendar year 2024 remains set at roughly $960 million.
Moreover, there is an anticipation of growth in the FCF, with projections suggesting it could exceed $1.2 billion in the calendar year 2025. This forecast is based on a year-over-year capital expenditure increase of about 5% to an estimated $740 million.
This revised price target reflects a nuanced view of GlobalFoundries' financial prospects, factoring in both the current challenges and the potential for growth in the coming years. Despite the reduction in the price target, the maintenance of a Buy rating indicates a continued positive outlook on the company's performance.
In other recent news, GlobalFoundries, the renowned semiconductor manufacturer, reported robust Q2 revenues of $1.632 billion, surpassing its guidance. Despite a 12% year-over-year revenue decrease, the company shipped about 517,300-millimeter equivalent wafers, maintaining a steady average selling price per wafer.
This success was propelled by design wins in the automotive and smart mobile device sectors, and the acquisition of Tagore Technologies' gallium nitride power business.
GlobalFoundries also reported a non-IFRS gross margin of 25.2% and non-IFRS diluted earnings per share of $0.38. The company is optimistic about future growth, aiming for a revenue range of $9.5 billion to $10 billion, with the expectation of improved gross margins in the upcoming quarters.
Apart from these financial highlights, GlobalFoundries is anticipating Q3 revenue to be between $1.7 billion and $1.75 billion. The company also forecasts a revenue-high water mark of $8.1 billion or $8.2 billion in 2022, leveraging factory fungibility. Long-term agreements, particularly in the automotive sector, are viewed as crucial, with $18 billion of lifetime revenue attached to existing LTAs.
InvestingPro Insights
GlobalFoundries Inc. (NASDAQ:GFS) is navigating a complex market environment, underscored by recent InvestingPro data. The company's market capitalization stands at approximately $24.01 billion, with a Price to Earnings (P/E) ratio of 29.62, suggesting investors are expecting earnings growth, despite the company's revenue decline of 12.39% in the last twelve months as of Q2 2024. Interestingly, the company's stock is trading near its 52-week low, and with a Price to Book ratio of 2.2, it may attract investors looking for potentially undervalued stocks in the Semiconductors & Semiconductor Equipment industry.
Two notable InvestingPro Tips for GlobalFoundries highlight the stock’s recent performance and analysts' expectations: the Relative Strength Index (RSI) suggests the stock is in oversold territory, and analysts have revised their earnings downwards for the upcoming period, indicating potential caution for short-term investors. However, it's worth mentioning that GlobalFoundries operates with a moderate level of debt and has liquid assets that exceed its short-term obligations, which could provide some financial stability.
For investors seeking a more in-depth analysis, there are additional InvestingPro Tips available, offering a comprehensive view of GlobalFoundries' financial health and market position. To explore these insights further, interested readers can visit InvestingPro for a full list of tips and metrics tailored to GlobalFoundries.
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