On Tuesday, JPMorgan analysts issued a downgrade for Sumco (OTC:SUOPY) Corp (3436:JP) (OTC: SUOPY), changing the stock rating from Overweight to Neutral and significantly reducing the price target from JPY 2,500.00 to JPY 1,280.00.
The stock, currently trading at $14.56, has fallen over 55% in the past six months and is trading near its 52-week low of $13.97, according to InvestingPro data.
The revision reflects concerns over the slow recovery in demand for legacy semiconductors and the potential for a substantial decline in Sumco's operating profit due to increased depreciation expected from the fiscal year 2025.
Analysts at JPMorgan highlighted a lack of progress in silicon wafer inventory adjustments as a key factor in the decision to downgrade Sumco's shares. The slow pace of demand recovery for legacy semiconductor products has contributed to the inventory issues, which in turn has raised concerns about the company's future financial performance.
InvestingPro analysis reveals several challenges, including weak gross profit margins of 19% and negative free cash flow yield, though the company maintains strong liquidity with a current ratio of 2.51. Subscribers to InvestingPro can access 8 additional key insights about Sumco's financial health and market position.
The revised price target of JPY 1,280.00, down from the previous target of JPY 2,500.00, indicates a more conservative outlook on the company's valuation. JPMorgan's analysts have adjusted their earnings estimates for Sumco, factoring in the challenges that the company may face in the coming years. Based on InvestingPro's Fair Value analysis, the stock appears to be fairly valued at current levels, despite its recent price decline.
In contrast to Sumco, JPMorgan expressed a preference for Tokyo Ohka Kogyo (4186:JP), a photoresist manufacturer. The analysts believe that Tokyo Ohka Kogyo is less likely to accumulate excess inventory, making it a more favorable option within the semiconductor materials sector.
The downgrade and price target adjustment for Sumco Corp come amid broader market concerns regarding the semiconductor industry's ability to manage inventory levels and navigate the evolving demand landscape for various semiconductor products.
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