Susquehanna ups Taiwan Semiconductor shares target on higher EPS outlook By Investing.com

Tuesday, Susquehanna maintained a Positive rating on Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM), with an increased share price target of $180, up from the previous $160. The firm’s analyst cited improved earnings per share (EPS) estimates for the fiscal years 2024 and 2025, as average selling prices (ASPs) are performing better than initially anticipated.

The analyst noted that the increase in ASPs is partly due to heightened demand for cutting-edge technology, while prices for less advanced technology have remained stable, despite competitors’ discounts.

The revision in the price target and EPS estimates follows an earlier increase on February 13, which was attributed to a surge in wafer shipments. Although the semiconductor industry is grappling with excess inventories, TSMC stands apart due to its customers’ need for advanced technology to develop new artificial intelligence (AI) products for cloud and data center applications, as well as central processing unit (CPU) and graphics processing unit (GPU) components for notebook AI products.

Despite the presence of excess inventory among specialty foundries, highlighted by Soitec’s disappointing guidance on March 28, TSMC’s pricing has not been affected due to the company’s unique position in the market.

Susquehanna expects that TSMC’s customers, including those in the mobile sector, will continue to launch new products using advanced technology. This trend is anticipated to provide further positive developments throughout the year, boosting confidence in TSMC’s EPS potential, which is projected to reach around $10 (TWD62).

The analyst concluded that TSMC’s stock is currently undervalued, especially when considering its earnings power. With a forward price-to-earnings (FWD P/E) ratio of 21 times, TSMC’s valuation is significantly lower than the semiconductor index’s (SOX) 31 times FWD P/E.

The firm believes that TSMC is the only viable option for manufacturing essential AI components, and with the broader demand outlook for 2025 looking positive after nearly two years of inventory correction, the firm suggests that a market re-rating for TSMC has yet to fully materialize .

InvestingPro Insights

Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM) is currently navigating the semiconductor landscape with notable financial metrics. With a robust market capitalization of $622.59 billion, the company maintains a P/E ratio of 23.81, reflecting investor confidence in its earnings capacity. The adjusted P/E ratio for the last twelve months as of Q4 2023 stands at 24.42, indicating a slight premium compared to the standard P/E. Despite a slight revenue contraction of 4.51% in the same period, TSMC’s gross profit margin hovers impressively at 54.36%, showcasing its cost efficiency and pricing power in the market.

The company’s operational strength is further evidenced by an operating income margin of 42.63% for the last twelve months as of Q4 2023. Investors tracking dividend performance will find TSMC’s dividend growth rate of 23.75% particularly compelling, coupled with a respectable dividend yield of 1.25% . On the price movement front, TSMC has experienced a 1-year price total return of 54.28%, reflecting robust investor sentiment and market performance.

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