Tower Semiconductor Ltd. (NASDAQ:TSEM) shares fell 8.5% to US$22.24 in the week since its latest yearly results. Revenues of US$1.2b were in line with forecasts, although statutory earnings per share (EPS) came in below expectations at US$0.84, missing estimates by 4.7%. Following the result, analysts have updated their earnings model, and it would be good to know whether they think there's been a strong change in the company's prospects, or if it's business as usual. We thought readers would find it interesting to see analysts' latest (statutory) post-earnings forecasts for next year.
Taking into account the latest results, the current consensus from Tower Semiconductor's five analysts is for revenues of US$1.30b in 2020, which would reflect a modest 5.7% increase on its sales over the past 12 months. Statutory earnings per share are expected to shoot up 40% to US$1.19. In the lead-up to this report, analysts had been modelling revenues of US$1.31b and earnings per share (EPS) of US$1.16 in 2020. Analysts seem to have become more bullish on the business, judging by their new earnings per share estimates.
The consensus price target was unchanged at US$28.37, implying that the improved earnings outlook is not expected to have a long term impact on value creation for shareholders. It could also be instructive to look at the range of analyst estimates, to evaluate how different the outlier opinions are from the mean. There are some variant perceptions on Tower Semiconductor, with the most bullish analyst valuing it at US$31.00 and the most bearish at US$21.20 per share. There are definitely some different views on the stock, but the range of estimates is not wide enough as to imply that the situation is unforecastable, in our view.
Further, we can compare these estimates to past performance, and see how Tower Semiconductor forecasts compare to the wider market's forecast performance. It's pretty clear that analysts expect Tower Semiconductor's revenue growth will slow down substantially, with revenues next year expected to grow 5.7%, compared to a historical growth rate of 7.9% over the past five years. Compare this against other companies (with analyst forecasts) in the market, which are in aggregate expected to see revenue growth of 8.9% next year. So it's pretty clear that, while revenue growth is expected to slow down, analysts still expect the wider market to grow faster than Tower Semiconductor.
The Bottom Line
The most important thing to take away from this is that analysts upgraded their earnings per share estimates, suggesting that there has been a clear increase in optimism towards Tower Semiconductor following these results. Fortunately, analysts also reconfirmed their revenue estimates, suggesting sales are tracking in line with expectations - although our data does suggest that Tower Semiconductor's revenues are expected to perform worse than the wider market. The consensus price target held steady at US$28.37, with the latest estimates not enough to have an impact on analysts' estimated valuations.
With that in mind, we wouldn't be too quick to come to a conclusion on Tower Semiconductor. Long-term earnings power is much more important than next year's profits. We have forecasts for Tower Semiconductor going out to 2021, and you can see them free on our platform here.
We also provide an overview of the Tower Semiconductor Board and CEO remuneration and length of tenure at the company, and whether insiders have been buying the stock, here.
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