Tower Semiconductor Is A High-Growth, High-Cash-Flow Gem In Tech: Analyst

Benchmark analyst Cody Acree initiated coverage on Tower Semiconductor Ltd. TSEM with a Buy Rating and a $36 price target.

The analyst writes that Tower Semiconductor is an undervalued, high-growth, high-cash-flow, and lesser-known specialty semiconductor outsourced manufacturing story.

The stock offers investors participation in some of the fastest-growing themes of the technology industry, including Artificial Intelligence, 5G Cellular and infrastructure, High-Speed Communications, and Aerospace and Defense applications, among others.

The analyst adds that Tower has identified multiple unique opportunities to economically grow its manufacturing footprint by acquiring existing fabs with long-standing volume customers.

Tower has consistently worked to strategically position itself to participate in and become the leader in designing and manufacturing many of the economy's newest technologies.

Tower expects its total capital expenditure budget to be about $500 million to equip its share of the allocated clean room space fully, notes the analyst. 

This capex breaks down to about $100 million already spent in FY22, and $100 million in the first half of FY23, and another $100 million expected to be spent during the second half of this year, with the remaining $200 million expected to be invested during FY24. 

According to the analyst, with annual revenue tripling from about $500 million in 2010 to about $1.68 billion in 2022, Tower is now easily one of the world's largest specialty foundries, growing 19% annually in 2021, and 11% in 2022, before correcting with the rest of the chip industry this year, with the estimate for about a 15% annual decline in 2023.

The analyst expects the company to return to annual growth of about 8% in 2024. 

This growth has been driven by the company's broad mix of unique capabilities in a wide range of manufacturing processes – including SiGe, BiCMOS, Mixed-Signal/CMOS, RFCMOS, CMOS Image Sensor, Power Management (BCD), and MEMS – as well as the flexibility of 6-, 8- and 12-inch wafers.

The analyst estimates FY23 EPS of $2.05, with $1.427 billion in revenues.

For FY24, the analyst projects EPS of $2.28 with $1.493 billion in revenues. 

Price Action:  TSEM shares are trading lower by 0.04% to $23.33 on the last check Wednesday.