On Wednesday, Citi revised its outlook on Samsung Electronics Co Ltd (KS:005930:KS) (OTC: SSNLF (OTC:SSNLF)), reducing the price target to KRW97,000 from the previous KRW110,000. The firm maintained a Buy rating on the stock despite anticipating lower-than-expected operating profit (OP) for the third quarter of 2024.
Citi's analysis points to a challenging period for Samsung's semiconductor business in the third quarter, driven by reduced demand in legacy memory and foundry segments. The analyst expects this slowdown, along with rising labor costs, to negatively impact the company's third-quarter operating profit, estimating it to fall to KRW9.5 trillion. This represents a significant decline from the second quarter's operating profit of KRW6.5 trillion in the semiconductor division alone.
For the mobile division, the outlook appears more positive with a projected increase in smartphone shipments. Samsung's smartphone shipments are estimated to rise to 58 million units in the third quarter, up from 53 million in the previous quarter. This growth is attributed to the recent launch of the Galaxy Z Fold 6 series.
The forecast for the third quarter of 2024 by division breaks down to KRW5.0 trillion in operating profit for the semiconductor division, KRW2.4 trillion for the mobile division, KRW1.5 trillion for the display division, and KRW0.5 trillion for the consumer electronics division. Despite the challenges in the semiconductor sector, the mobile division's performance provides a more optimistic aspect of Samsung's business outlook.
In other recent news, Samsung Electronics Co Ltd is experiencing a series of significant developments. UBS has maintained a Buy rating on Samsung shares, expressing confidence in the company's future performance. This confidence is grounded in the anticipation of a recovery in the memory procurement from PC and Chinese smartphone manufacturers by the fourth quarter of 2024.
On the other hand, BofA Securities has downgraded Samsung's stock from Buy to Neutral. This adjustment is due to projections of a gradual decline in operating profit through the second quarter of 2025, primarily because of anticipated drops in memory average selling prices.
In legal news, Samsung faces two lawsuits. Epic Games has announced plans to sue Samsung and Google (NASDAQ:GOOGL), alleging anti-competitive practices. Simultaneously, Samsung, along with Xiaomi (OTC:XIACF) and other smartphone manufacturers, has been implicated in a case of alleged antitrust violations in India.
InvestingPro Insights
To complement Citi's analysis of Samsung Electronics, InvestingPro data offers additional context to the company's financial position. Despite the challenges in the semiconductor sector, Samsung's P/E ratio of 15.83 suggests a relatively moderate valuation compared to some tech peers. The company's price-to-book ratio of 1.09 indicates that the stock is trading close to its book value, which could be attractive to value investors.
InvestingPro Tips highlight Samsung's financial strength, noting that the company "holds more cash than debt on its balance sheet" and "liquid assets exceed short-term obligations." These factors may provide Samsung with financial flexibility to navigate the current market challenges in the semiconductor industry.
Additionally, an InvestingPro Tip points out that Samsung has "maintained dividend payments for 32 consecutive years," which may appeal to income-focused investors despite the recent stock price decline. This long-standing dividend history suggests a commitment to shareholder returns even in challenging times.
For readers interested in a more comprehensive analysis, InvestingPro offers 11 additional tips for Samsung Electronics, providing a deeper understanding of the company's financial health and market position.
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