Tag: EBITDA margin

TSM’s Demand Woes May Benefit 3 Chip Stocks

Posted on by The INO.com Team

Semiconductor sales reached their highest level last year despite witnessing a slowdown during the year's second half. The slowdown was primarily due to the decline in demand from the end-user markets because of macroeconomic headwinds.

According to Gartner, global semiconductor revenues will decline 11.2% in 2023. Popular chipmaker Taiwan Semiconductor Manufacturing Company Limited (TSM) is also witnessing a slowdown in demand. According to sources, the company, to control costs, has asked its major suppliers to delay the delivery of chipmaking equipment.

Although the long-term growth prospects of the semiconductor industry look bright, the near-term headwinds will continue to put pressure on the chip industry in the short term. Gartner’s Practice VP Richard Gordon said, “As economic headwinds persist, weak end-market electronics demand is spreading from consumers to businesses, creating an uncertain investment environment.”

“In addition, an oversupply of chips, which is elevating inventories and reducing chip prices, is accelerating the decline of the semiconductor market this year,” he added. In July, TSM, a major supplier to smartphone giant Apple Inc. (AAPL), forecasted that it would witness a 10% drop in sales in 2023, and its investment spending would be at the lower end of its estimate of $32 billion and $36 billion.

TSM CEO C.C. Wei highlighted that the decline in demand would be mostly due to a tepid recovery in China, soft demand in the end market, and a weak global economic scenario. Although the demand for artificial intelligence (AI) chips is likely to remain strong, it is unlikely to offset the softer demand in the end markets due to declining sales of smartphones, personal computers, laptops, etc.

Degroof Petercam’s analyst Michael Roeg said, “There has been a lot of excitement about artificial intelligence and the implications for the semiconductor industry. However, the strength in demand for AI chips is not strong enough to compensate (for) what is happening in other segments.”

After global demand for consumer electronics spiked during the pandemic, companies had stockpiled chips to meet the high demand. However, as the demand slowed down in the end markets due to high inflation, companies were stuck with excess inventories, and this led to a fall in the demand for chips, followed by a decline in their prices.

TSM’s CFO Wendell Huang said, “Moving into the third quarter 2023, we expect our business to be supported by the strong ramp of our 3-nanomenter technologies, partially offset by customers’ continued inventory adjustment.”

AAPL, a major TSM customer, announced its latest iPhone series with the cutting-edge 3-nanometer chip but did not raise prices, indicating softness in the smartphone market. AAPL is currently facing trouble in a key market like China as the Chinese government banned some government employees from using iPhones at work.

Furthermore, smartphone maker Huawei came up with the Mate 60 series, which utilizes an advanced chip made by Chinese chipmaker SMIC. All these factors might put pressure on iPhone sales this year, piling further pressure on TSM.

Moreover, TSM is facing delays at its Arizona plant. The company was forced to push back production at the plant by a year to 2025 as it faced difficulty recruiting workers and pushback from unions due to its efforts to bring workers from Taiwan. After investing heavily in expanding its capacity, the company is looking at a slower increase in capital expenditure in the coming years.

As TSM’s headwinds are expected to continue, fundamentally stable chip stocks Infineon Technologies AG (IFNNY), STMicroelectronics N.V. (STM), and ChipMOS TECHNOLOGIES INC. (IMOS) might benefit.

Let’s discuss these stocks in detail.

Infineon Technologies AG (IFNNY)

Headquartered in Neubiberg, Germany, IFNNY designs, develops, manufactures, and markets semiconductors and related system solutions worldwide.

On August 3, 2023, IFNNY announced its decision to expand its Kulim fab over and above the original investment announced in February 2022. The company will build the world’s largest 200-millimeter SiC (silicon carbide) Power Fab. The expansion is backed by new design wins in automotive and industrial applications for about five billion euros and about one billion euros in pre-payments.

The company will additionally invest up to €5 billion in Kulim during the second construction phase for Module Three. The investment will lead to an annual SiC revenue potential of about €7 billion by the end of the decade, together with the planned 200-millimeter SiC conversion of Villach and Kulim.

IFNNY’s CEO Jochen Hanebeck said, “The market for silicon carbide shows accelerating growth, not only in automotive but also in a broad range of industrial applications such as solar, energy storage, and high-power EV charging. With the Kulim expansion, we will secure our leadership position in this market.”

IFNNY’s revenue grew at a CAGR of 26.1% over the past three years. Its EBITDA grew at a CAGR of 45.7% over the past three years. In addition, its EPS grew at a CAGR of 96% in the same time frame.

In terms of trailing-12-month net income margin, IFNNY’s 19.13% is 840.7% higher than the 2.03% industry average. Likewise, its 35.32% trailing-12-month EBITDA margin is 285.9% higher than the industry average of 9.15%. Furthermore, the stock’s trailing-12-month Capex/Sales came in at 15.52%, compared to the industry average of 2.42%.

For the third quarter ended June 30, 2023, IFNNY’s revenue increased 13% year-over-year to €4.09 billion ($4.37 billion). Its adjusted gross margin came in at 46.2%, compared to 45.4% in the prior-year quarter. The company’s profit for the period rose 60.7% year-over-year to €831 million ($887.97 million). Also, its adjusted EPS came in at €0.68, representing an increase of 38.8% year-over-year.

Analysts expect IFNNY’s revenue for the quarter ending September 30, 2023, to increase 2% year-over-year to $4.37 billion. It surpassed the consensus EPS estimates in three of the trailing four quarters.

STMicroelectronics N.V. (STM)

Based in Geneva, Switzerland, STM designs, develops, manufactures, and sells semiconductor products in Europe, the Middle East, Africa, the Americas, and the Asia Pacific. The company operates through the Automotive and Discrete Group, Analog, MEMS, and Sensors Group; and Microcontrollers and Digital ICs Group segments.

STM’s revenue grew at a CAGR of 21.6% over the past three years. Its EBIT grew at a CAGR of 65.7% over the past three years. In addition, its net income grew at a CAGR of 69.5% in the same time frame.

In terms of trailing-12-month net income margin, STM’s 27.45% is significantly higher than the 2.03% industry average. Likewise, its 29.78% trailing-12-month EBIT margin is 559.7% higher than the industry average of 4.51%. Furthermore, the stock’s trailing-12-month asset turnover ratio came in at 0.88x, compared to the industry average of 0.62x.

STM’s net revenues for the second quarter ended July 1, 2023, increased 12.7% year-over-year to $4.33 billion. Its net cash from operating activities rose 24.1% year-over-year to $1.31 billion. The company’s net income rose 15.5% year-over-year to $1 billion. Also, its EPS came in at $1.06, representing an increase of 15.2% year-over-year.

Street expects STM’s revenue for the quarter ending September 30, 2023, to increase 1.7% year-over-year to $4.38 billion. Its EPS for fiscal 2023 is expected to increase 3.3% year-over-year to $4.33. It surpassed the Street EPS estimates in three of the trailing four quarters.

ChipMOS TECHNOLOGIES INC. (IMOS)

Headquartered in Hsinchu, Taiwan, IMOS researches, develops, manufactures, and sells high-integration and high-precision integrated circuits and related assembly and testing services. It operates through Testing, Assembly, Testing, and Assembly for LCD, OLED, and Other Display Panel Driver Semiconductors, Bumping; and Others segments.

IMOS’s total assets grew at a CAGR of 8.7% over the past three years. Its Tang Book Value grew at a CAGR of 6.8% over the past three years. In addition, its revenue grew at a CAGR of 2.9% over the past five years.

In terms of trailing-12-month net income margin, IMOS’ 8.63% is 324.4% higher than the 2.03% industry average. Likewise, its 29.37% trailing-12-month EBITDA margin is 220.9% higher than the industry average of 9.15%. Furthermore, the stock’s trailing-12-month Capex/Sales is 15.32%, higher than the industry average of 2.42%.

For the fiscal second quarter ended June 30, 2023, IMOS’ revenue came in at NT$5.44 billion ($169.84 million). Its net non-operating income came in at NT$222.40 million ($6.94 million. The company’s net profit attributable to equity holders of the company came in at NT$628.50 million ($19.62 million). Also, its EPS came in at NT$0.86.

For the quarter ending September 30, 2023, IMOS’ revenue is expected to increase 6.9% year-over-year to $176.86 million.

5 Stocks to Buy Now in Response to Rising Unemployment Rate

Posted on by The INO.com Team

The recently released August jobs report signaled a cooling down of the robust U.S. job market. With the strong job growth since last year acting as an Achilles heel for the Fed, the benchmark interest rate was raised several times to control inflation.

Although nonfarm payrolls beat estimates of 170,000 to arrive at 187,000 in August, the unemployment rate was 3.8%, rising sequentially to the highest since February 2022. Moreover, the real unemployment rate peaked at 7.1%, increasing by 0.4% and marking the highest since May 2022. Furthermore, the nonfarm payrolls for June and July were revised considerably downward.

The healthcare sector showed the most significant job gain, adding 71,000 jobs. The latest Job Opening and Labor Turnover Survey (JOLTS) report released last week showed that job openings fell to their lowest since March 2021, indicating softness in the labor market. The JOLTS report showed that there were 8.82 million jobs open at the end of July, a decline from the 9.16 million job openings in June.

Wells Fargo Economics senior economist Sarah House said, “Job openings per unemployed person remain above pre-pandemic levels, but this indicator is clearly on a downward trajectory amid cooling labor demand growth and impressive labor supply growth. A normalizing quit rate suggests that the fight over workers is subsiding, at least at the aggregate level.”

The Bureau of Economic Analysis (BEA) revealed that the real gross domestic product (GDP) rose at an annual rate of 2.1% in the second quarter. The latest estimate was lower than the initial advance estimate of a 2.4% growth.

Wells Fargo economist Shannon Seery said, “Overall, there were not any major revisions to the underlying GDP components compared to the first estimate of output, and today’s data do not materially change our overall view of the economy. Incoming data for Q3 show an economy that has continued to expand but with signs of some moderation. We continue to expect the economy to gradually slow during the second half of the year.”

Amid the rise in unemployment and an expected economic slowdown during the second half of the year, investors could consider investing in the healthcare sector as it is relatively stable compared to other sectors. The sector's inelastic demand enables companies in this space to maintain their profit margins irrespective of economic cycles.

Considering these factors, fundamentally strong healthcare stocks Eli Lilly and Company (LLY), Johnson & Johnson (JNJ), Merck & Co., Inc. (MRK), Pfizer Inc. (PFE), and Amgen Inc. (AMGN) could be solid portfolio additions now.

Let’s discuss the fundamentals of these stocks.

Eli Lilly and Company (LLY)

LLY discovers, develops, and markets human pharmaceuticals worldwide. It offers Basaglar, Humalog, Humalog Mix 75/25, Humalog U-200, Humalog Mix 50/50, insulin Iispro, insulin Iispro protamine, insulin Iispro mix 75/25, Humulin, Humulin 70/30, Humulin N, Humulin R, and Humulin U-500 for diabetes; and Jardiance, Trajenta, and Trulicity for type 2 diabetes.

On August 14, 2023, LLY announced the acquisition of Versanis Bio. The acquisition will expand LLY’s portfolio to include Versanis’ lead asset, bimagrumab, which is undergoing a Phase 2b study alone and in combination with semaglutide in adults living with overweight or obesity.

Ruth Gimeno, Ph.D., group vice president diabetes, obesity, and cardiometabolic research at LLY, said, “Combining our current incretin portfolio, including tirzepatide, with activin receptor blockers such as bimagrumab, could be the next major step in innovative treatments for those living with cardiometabolic diseases, like obesity.”

“The wealth of knowledge that our new colleagues from Versanis will bring to Lilly will propel our research and development efforts forward, ultimately benefiting patients around the world,” she added.

In terms of the trailing-12-month EBITDA margin, LLY’s 33.08% is 532.9% higher than the 5.23% industry average. Likewise, its 17.13% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.22%. Furthermore, its 8.55% trailing-12-month Capex/Sales is 89.4% higher than the 4.52% industry average.

LLY’s revenue for the second quarter ended June 30, 2023, increased 28% year-over-year to $8.31 billion. The company’s non-GAAP gross margin increased 28% year-over-year to $6.63 billion. Its non-GAAP net income rose 68.3% over the prior-year quarter to $1.90 billion. Also, its non-GAAP EPS came in at $2.11, representing an increase of 68.8% year-over-year.

Analysts expect LLY’s EPS and revenue to increase 47% and 27.1% year-over-year to $2.91 and $8.82 billion, respectively. It surpassed the consensus EPS estimates in three of the trailing four quarters. Over the past year, the stock has gained 80.2%.

Johnson & Johnson (JNJ)

JNJ researches, develops, manufactures, and sells various products in the healthcare field worldwide. It operates under three segments: Consumer Health, Pharmaceutical, and MedTech.

On August 10, 2023, JNJ’s The Janssen Pharmaceutical Companies announced that the U.S. FDA had granted accelerated approval of TALVEY (talquetamab-tgvs), a first-in-class bispecific antibody for the treatment of adult patients with relapsed or refractory multiple myeloma who have received at least four prior lines of therapy, including a proteasome inhibitor, an immunomodulatory agent, and an anti-CD38 antibody.

In terms of trailing-12-month gross profit margin, JNJ’s 67.50% is 21.7% higher than the 55.44% industry average. Likewise, its 0.53x trailing-12-month asset turnover ratio is 41.1% higher than the industry average of 0.38x. Furthermore, the stock’s 21.99% trailing-12-month levered FCF margin is significantly higher than the 0.22% industry average.

For the second quarter ended June 30, 2023, JNJ’s reported sales rose 6.3% year-over-year to $25.53 billion. Its gross profit rose 7.6% year-over-year to $17.32 billion. The company’s adjusted net earnings increased 6.5% over the prior-year quarter to $7.36 billion. In addition, its adjusted EPS came in at $2.80, representing an increase of 8.1% year-over-year.

Street expects JNJ’s EPS for the quarter ending December 31, 2023, to increase 8.6% year-over-year to $2.55. Its fiscal 2024 revenue is expected to increase 3.8% year-over-year to $87.79 billion. It surpassed the Street EPS estimates in each of the trailing four quarters. Over the past six months, the stock has gained 5.2%.

Merck & Co., Inc. (MRK)

MRK is a global healthcare company that offers solutions through its prescription medicines, vaccines, biologic therapies, and animal health products. The company operates in the Pharmaceutical and Animal Health segments.

On June 16, 2023, MRK announced the completion of the acquisition of Prometheus Biosciences (RXDX). MRK’s Chairman and CEO Robert M. Davis said, “The Prometheus acquisition accelerates our growing presence in immunology, augments our diverse pipeline, and increases our ability to deliver patient value. This transaction is another example of Merck acting strategically and decisively when science and value align.”

In terms of trailing-12-month gross profit margin, MRK’s 73.22% is 32.1% higher than the 55.44% industry average. Likewise, the stock’s 7.28% trailing-12-month Capex/Sales is 61.3% higher than the 4.52% industry average. Furthermore, its 0.55x trailing-12-month asset turnover ratio is 46.9% higher than the industry average of 0.38x.

MRK’s sales for the second quarter ended June 30, 2023, increased 3% year-over-year to $15.04 billion. Its non-GAAP net loss that excludes certain items came in at $5.22 billion, compared to a non-GAAP net income of $4.74 billion in the year-ago quarter. Also, its non-GAAP loss per share came in at $2.06, compared to a non-GAAP EPS of $1.87 in the prior-year quarter.

For the quarter ending September 30, 2023, MRK’s EPS and revenue are expected to increase 4.7% and 1.8% year-over-year to $1.94 and $15.22 billion, respectively. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 26%.

Pfizer Inc. (PFE)

PFE discovers, develops, manufactures, markets, distributes, and sells biopharmaceutical products worldwide. It offers medicines and vaccines in various therapeutic areas, including cardiovascular metabolic and women's health, biosimilars, sterile injectable and anti-infective medicines, and oral COVID-19 treatment.

On August 21, 2023, PFE announced that the U.S. FDA approved ABRYSVO (Respiratory Syncytial Virus Vaccine), its bivalent RSV prefusion F (RSVpreF) vaccine, for the prevention of LRTD and severe LRTD caused by RSV in infants from birth up to six months of age by active immunization of pregnant individuals at 32 through 36 weeks gestational age.

PFE’s 32.53% trailing-12-month EBIT margin is significantly higher than the 0.15% industry average. Its 69.82% trailing-12-month gross profit margin is 25.9% higher than the industry average of 55.44%. Furthermore, the stock’s 15.85% trailing-12-month levered FCF margin is considerably higher than the industry average of 0.22%.  

PFE’s revenues for the second quarter ended June 30, 2023, declined 54% year-over-year to $12.73 billion. The company’s adjusted income decreased 67.1% year-over-year to $3.84 billion. Its adjusted EPS came in at $0.67, representing a decline of 67.2% over the prior-year quarter.  

PFE’s EPS and revenue for fiscal 2024 are expected to increase 3.9% and 0.1% year-over-year to $3.43 and $66.54 billion, respectively. It has an impressive earnings surprise history, surpassing its consensus EPS estimates in each of the trailing four quarters. Over the past month, the stock has gained 0.5%.  

Amgen Inc. (AMGN)

AMGN discovers, develops, manufactures, and delivers human therapeutics worldwide. It focuses on inflammation, oncology/hematology, bone health, cardiovascular disease, nephrology, and neuroscience.  

On September 1, 2023, AMGN and Horizon Therapeutics Public Limited Company (HZNP) announced the entry into a consent order agreement with the Federal Trade Commission (FTC), helping resolve the pending FTC administrative lawsuit. This effectively clears AMGN’s path to close the acquisition of HZNP.

With the consent order agreement, AMGN and HZNP expect that the parties will jointly file stipulated proposed orders to dismiss the preliminary injunction motion and dissolve the temporary restraining order in the U.S. District Court for the North District of Illinois. Both companies will seek the final approvals required under Irish law to close the acquisition.

In terms of the trailing-12-month gross profit margin, AMGN’s 74.29% is 34% higher than the 55.44% industry average. Likewise, its 37.82% trailing-12-month levered FCF margin is significantly higher than the industry average of 0.22%. Furthermore, its 51.78% trailing-12-month EBITDA margin is 890.5% higher than the 5.23% industry average.

For the fiscal second quarter ended June 30, 2023, AMGN’s total revenues increased 5.9% year-over-year to $6.99 billion. Its non-GAAP operating income rose 5.4% over the prior-year quarter to $3.52 billion. The company’s non-GAAP net income increased 7.5% year-over-year to $2.68 billion. Also, its non-GAAP EPS came in at $5, representing an increase of 7.5% year-over-year.

Street expects AMGN’s revenue for the quarter ending September 30, 2023, to increase 4% year-over-year to $6.92 billion. Its EPS for the quarter ending December 31, 2023, is expected to increase 15% year-over-year to $4.70. It surpassed the Street EPS estimates in three of the trailing four quarters. Over the past three months, the stock has gained 19.8%.