Redburn Atlantic upgraded shares of ASML Holdings (ASML) to Neutral from Sell, raising the price target to €900 from €660 in a note to clients Tuesday.
The upgrade and target increase follows the company's significant 253% quarter-over-quarter inflection in ASML's Q2 2023 orders, which were far better than Redburn expected.
"The upcycle is here," according to analysts at Redburn. They explained that the increase de-risks FY25 guidance. As a result, the firm has also revised up its FY24 to FY26 estimates by 3% to 6%.
Despite the positives, Redburn feels that the negatives remain for ASML, with the firm questioning the methods ASML employed to achieve the order intake beat.
"ASML waived its requirement for €748m of advanced customer deposits," they said. "At 15% downpayment this would relate to €5,000mln of orders, more than 50% of the €9.2bn booked. These absent deposits were factored together with €246m of receivables, accounting for c€1bn or 18% of operating cashflow compared with nil the prior year."
Redburn believes that into 2025, the focus for ASML will be a return to the likely reduced litho-intensity in the vertical scaling and the commerciality of high NA EUV.
"ASML's business model is less bullet-proof than consensus believes, but 2024 is about the rising cycle which lifts all boats," Redburn concluded.