Tower Semiconductor Reports Q1 Earnings Beat; Top Analyst Says Buy On Weakness

Tower Semiconductor (TSEM) has reported solid first quarter earning results with Q1 Non-GAAP EPS of $0.20 beating Street forecasts by $0.01. Meanwhile revenue of $300M (-3.3% Y/Y) also surpassed consensus expectations by $2.36M- and reflected 10%, or $19 million, year-over-year organic growth.

Looking forward, Tower Semiconductor expects revenues for the second quarter of 2020 to be $310 million, with an upward or downward range of 5%.

During the quarter, TSEM began to implement the capacity expansion plan of its 300-millimeter facility, as evidenced by the higher-level investments in equipment to $63 million.

“This activity supports existing and future demand, which we see from our customers for our various 300-millimeter platforms, which exceeds our current capacity, with an expected increase in shipments beginning in the third quarter of this year” commented CEO Russell Ellwanger.

Following the results, Needham’s Rajvindra Gill highlighted TSEM as “one of the few semiconductor companies that will show growth this year.”

He maintained his Tower Semiconductor buy rating and $27 price target, arguing that a strong print and guide is a “significant event considering the uncertain environment.”

Unlike most semiconductor companies, TSEM is forecasting sequential growth in 2Q and is expected to grow organically for the year, points out Gill. Moreover, it has not cut its estimates meaningfully because of COVID-19 he says.

With shares down 18% year-to-date, the analyst recommends buying TSEM on weakness. Tower Semiconductor is a primary beneficiary of key secular trends, says Gill, including SiGe optical upgrades to 100G/400G for 5G infrastructure build outs and rebound in data center orders, and higher mix of 5G smartphones as total of overall smartphones.

Overall the Street has a cautiously optimistic Moderate Buy consensus on the stock, with 2 recent buy ratings and 1 hold rating. The average analyst price target stands at $24.40 (23% upside potential). (See TSEM stock analysis on TipRanks).

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