Bernstein SocGen Group updated its outlook on Taiwan Semiconductor Manufacturing Co. Ltd. (NYSE:TSM), increasing the price target to $220 from the previous $200. The firm retains an Outperform rating on the stock, signaling confidence in TSMC's market position and financial health.
The revision reflects a positive assessment of TSMC's valuation, particularly in the context of potential economic downturns. Bernstein's analysis suggests TSMC is well-positioned to perform better than its peers should a recession occur, due to its advanced technologies and market share gains.
The price target hike is justified by applying a 20x forward Price-to-Earnings (P/E) ratio, which Bernstein considers conservative compared to TSMC's three-year Earnings Per Share (EPS) Compound Annual Growth Rate (CAGR) of 26%. This valuation is also noted to be 25% lower than that of the semiconductor index SOX.
As of August 16, Bernstein's target price implies a 24% upside for TSMC's shares, inclusive of a 2% contribution from dividends. The firm emphasizes that while it does not anticipate a recession, TSMC's robust technology offerings and continued share gains should provide it with a stronger buffer against economic headwinds than its competitors.
In other recent news, Taiwan Semiconductor Manufacturing Company (TSMC) reported a robust performance in Q2 of 2024, with a sequential revenue increase of 13.6% in NT dollars and 10.3% in USD. The company's gross margin rose to 53.2%, and the operating margin reached 42.5%.
TSMC's High-Performance Computing (HPC) segment accounted for more than half of the total revenue for the first time, standing at 52%. The company revised its full-year revenue guidance to a growth rate slightly above the mid-20s percent in USD terms.
TSMC's capital expenditure for 2024 is projected to be between USD 30 billion and USD 32 billion, primarily allocated to advanced process technologies. The three-nanometer technology contributed 15% of wafer revenue, with five-nanometer and seven-nanometer at 35% and 17%, respectively.
In other developments, TSMC anticipates a 9.5% sequential revenue increase or a 32% year-over-year increase at the midpoint for Q3.
InvestingPro Insights
Taiwan Semiconductor Manufacturing Co. Ltd. (TSM) is currently showing a strong financial performance with a market capitalization of $785.25 billion, reflecting its substantial presence in the semiconductor industry. The company's Price-to-Earnings (P/E) ratio stands at 27.22, which is slightly above the adjusted P/E ratio for the last twelve months as of Q2 2024, at 27.29. This indicates a stable valuation over the recent period.
InvestingPro data highlights TSMC's impressive revenue growth of 9.44% over the last twelve months as of Q2 2024, with a significant quarterly surge of 40.07% in Q2 2024. The company's gross profit margin is robust at 53.36%, showcasing its efficiency in maintaining profitability amidst industry challenges. Additionally, TSMC's return on assets is strong at 16.56%, indicating effective utilization of its assets to generate earnings.
InvestingPro Tips suggest that TSMC's dividend growth of 23.0% and a healthy dividend yield of 1.12% as of the latest data point in 2024, combined with a year-to-date price total return of 68.77%, make it an attractive stock for investors seeking both growth and income. With the fair value as assessed by analysts at $214, compared to InvestingPro's fair value estimate of $156.32, investors should consider the range of valuations when making investment decisions. For those looking to delve deeper into TSMC's financial health, InvestingPro offers additional insights and tips that could further inform your investment strategy.
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